What do you think is the best way to pay for college?
Well, besides having someone else pay for you . . . that would be nice. So let's talk about that for a moment.
I have a blog posted, "Scholarships Myth and Reality." Check it out. Quickly, for now, here's the truth:
There are no rich people out there waiting to jump at the chance to pay for your child's college education.
Scholarships tend to fall into two categories: Merit, based on very low income; and Merit, based on exceptional achievements.
There are others, and they are often very narrowly defined as to eligibility.
Scholarship searches should be done no later than the summer between 11th and 12th grade. Deadlines for application are typically early in 12th grade year.
Remember, you finance every purchase you make. Either you pay interest to a borrower, or you lose the interest you could have earned had you kept the money invested. That is what opportunity cost is all about. Spend $80,000 for your student's college education, at in-state tuition rates. What could that eighty-grand, well-placed, have earned for you between now and your retirement? That is the true cost of paying cash.
Borrowing from the right source may, actually, be very efficient. Here's an example:
You know you can earn 5% - 6% using proven, financial strategies.
Students can borrow (2020-2021 rates) at 2.75%
Why take money out of account earning 5% or better, when you could use someone else's money @ 2.75%?
I am not recommending loans, nor am I recommending paying cash. What I am advocating is that you consider all options; and especially those that an experienced college planner, with financial expertise, may suggest.
Frequent reminders of essential information are necessary and important. That is brought to my attention when, in conversation with a parent, the mystery and misunderstanding of FAFSA come to the front. This blog is not exhaustive in its treatment of FAFSA. I have written other blogs on the topic, including 8 common mistakes to avoid when completing FAFSA. You can read that post by clicking here. This article is the reminder you want of the basics about FAFSA.
- FAFSA Free Application for Federal Student Aid. The application is free, not necessarily will the financial aid be free. Reputable counselors (like your author) do not charge a fee to help families complete FAFSA. Other consulting services do come with a fee.
- It's a data collection tool. FAFSA does not award any financial aid. There is a Student Aid Report (SAR)generated as FAFSA is completed and submitted. However, even those amounts are not set in stone. The data you provide is sent to any college you list within the FAFSA form. Those college financial aid offices make the actual awards decisions.
- A loan is a loan. Every FAFSA SAR I have seen includes student loans. As with any other loan, there is paperwork to be completed, by the student, within a deadline. The requirements include signing off on a financial education module, signing a Note of Indebtedness, and signing a consent to assign the loan dollars to the college of your choice. Those dollars will be deposited in your student account, and the college will deduct appropriate charges. The balance (if any) is yours to do with as you please. There are origination charges (temporarily waived for COVID-19 relief), and interest charges that may be subsidized (i.e. paid for) by the U.S. Treasury Department. Most loans, however, are unsubsidized. That means the student owes the interest as well as the principal sum.
- Annual renewal is required. You complete a FAFSA every year for which you seek financial aid for college. You create an account, including a username and password; challenge questions; a Save Code; and double authentication (email and cellphone). Because of those features, subsequent applications are pre-populated. Often, the only change required is to update the family's financials.
- There is a limit. Undergraduate students may borrow, on their own signatures, up to $27,000; with an extra $4,500 in special circumstances, or $31,500 maximum. Eligibility and disbursement are $5,500 for year one; $6,500, year two; $7,500 year three; and $7,500 year four. The additional $4,500 is not guaranteed, and can be requested at the end of year four. Horror stories you read about unimaginable student debt are because of private loans, which in most cases, require a co-signor.
- Interest rates are attractive. Direct Student Loans interest rates are low, and change every year, effective July 1. The interest charged is linked to the Ten-Year Treasury Note interest rate. Each annual loan, therefore, has its own interest rate. Each annual loan is a separate contract. For a student graduating in four years, and taking advantage of student loans, he or she will have four different loans, each with its own interest rate. Those four may be consolidated at a yet new interest rate (one that is typically favorable).
Takeaways are: FAFSA gives no money, the colleges do. FAFSA aggregates data and sends it where you say. FAFSA is an annual application. On their own signatures, undergraduates can borrow a maximum of $27,000 (and with approval, $31,500). Interest rates favor using the loans. Remember, you finance every purchase you make: either borrow and pay interest, or pay cash and lose interest.
The news is filled with stories warning about student debt, lamenting student debt, highlighting political promises to forgive student debt. I have yet to see a news story that reveals the true cost of a college education with or without loans.
One factor in understanding true cost is to add in opportunity cost. Another factor is missed income because a student took more than four years to graduate. A third factor is the one most people think about, interest rates.
Let's look at them in reverse order. Interest rates on Direct Student Loans are actually as low as current mortgage rates; currently 2.75% for students borrowing for the academic year 2020-2021 (FSA Student Loans). Furthermore, undergraduates hit a borrowing ceiling of $27,000 over four years. A $27,000 loan at 2.75%, amortized over ten years will incur a monthly debt service of less than $276.00. That is not crushing debt service for a college graduate.
Are you wondering, then, where all the stories come from about crushing student debt? The answer is found when students "need" to borrow beyond the $27,000 federal, direct loan. Then they go into the private lending market. Sallie Mae is a big player in that arena, and interest rates there can be as high as 12%. Here's an example of what can happen:
Wilma decides she must attend "Bigtime U" at out-of-state rates of $31,750.
$31,750 multiplied by 4 years is $127,000. She borrows $27,000 @ 2.75% using the Direct Student Loan privileges. The remaining $100,000 is picked up at Sallie Mae, and let's say her consolidated loan interest rate is fixed at 10%; amortized over ten years.
Total, monthly debt service is $1,586.00. Yes, that is one thousand five hundred eighty-six dollars per month for ten years ($1,310 to Sallie Mae; $276 to Federal Student Aid).
Furthermore, her Sallie Mae loan required a co-signor. So now a $100,000 obligation is sitting on mom's, dad's or grandparent's credit report.
We're not done. Hang in there. Keep reading.
If Wilma takes five years to graduate with a B.S. in something, that fifth year will cost her the full, out-of-state tuition, plus other costs; let's say $50,000. In addition to borrowing another fifty grand at current interest rates, she will not be earning $45,000 in her first career track job (The 4-Year Myth). Therefore, the cost of the fifth year is actually $95,000; nearly equal to the cost of the first four years. We have previously written a 3 part series on The 4-Year Myth. You can click here to read part 1,
and part 3.
Finally, factor #3 is opportunity cost. Let's keep this simple and not even factor in the interest Wilma is paying. Let's just look at the principle sum of $177,000 ($127k for years 1-4, and $50k for year 5). If Wilma had put that amount of money into an investment account earning a modest 5% interest, compounding annually during her working career, she would have, at age 67, more than two million dollars to live on in retirement. I hazard a guess to say she will struggle to achieve that with her college degree, and $1,586 per month debt service.
If you feel that the pathways of college admissions and financial aid are labyrinthine, I would not challenge you about that perception. "Straightforward" is an adjective few veterans of the processes would use.
Merriam-Webster Dictionary defines pandemonium as a chaotic situation (https://www.merriam-webster.
What were high school students (grades 10 and 11, in particular) doing at this time last year? They were marking their calendars for campus visits. High school seniors were making calculated decisions about at which college to matriculate, from among several letters of acceptance. Campus life was a much more exciting prospect to those seniors than to their parents.
Then March arrived, along with the national, two-week shut-down to flatten the curve. Longest two weeks of my life! How about yours? So many excited first-year students have suffered through "virtual" higher education, and many from their parents' homes. I wonder how many parents now wish their college student was, in fact, away at college?
What will life look like for current high school seniors, come August, 2021? I have no idea; nor do the colleges; nor does anyone I know of, save the Lord God.
Here are my suggestions for 2021:
· High school seniors plan on campus life, somewhat modified by COVID-19 restrictions. However, also develop an at-home contingency plan. That includes re-organizing space in your house to create a dedicated study room. Include purchasing a new laptop computer with software suitable to the demands of college. Ask your college(s) what they recommend; particularly in your proposed major. For example, one of my former students, and now a rising college senior, needed a very sophisticated software program, with correspondingly powerful processors, for her engineering classes this past fall. Her plan to share with classmates was cancelled by the fact that she could not meet with any of them, even though she was living in a university-owned apartment, conveniently off-campus.
· High school juniors double down on your efforts for campus visits. Contact the colleges on your "Top Six" list. Ask about visiting. For campuses offering "virtual tours" only, schedule an appointment for that (or get the dates those are being offered). Write down every question you can think of. You may find yourself online with just one or two others, providing you a valuable opportunity to get some personal attention. Furthermore, be certain you set foot on the college campuses you are seriously considering, even if it is a private, unscheduled and unofficial visit. It is important that you see the campus, walk around the grounds, and visualize yourself there. Does it feel like the right place for you?
· High school sophomores surely, I mean surely(!) by the fall semester of 2023 campus life will have taken some form of predictability. Therefore, rather than concentrating on "Where?", concentrate on "Why?" For what reason are you going to college? To what end? Is a college education essential to your career-plans following high school? Do you know what those career plans look like? Why not? Those questions, and other similar questions, are much more important than where you will fulfill your higher education; at least for now.
One last fact to mention, and that is regarding financial aid. Big, big changes are coming to the financial aid formulae for the college years beginning Fall 2023-Spring 2024. The changes do not favor the middle class.
Your Child and the Christmas Child
Second only to you is there someone who values and cares about your teenage children as they stand on the threshold of their adult lives, backs to their childhood homes, about to step forward, irreversibly and consequentially. That someone, in the existential sense, is me your college admissions and financial aid coach. Beyond that is the one who called me to my work, our Lord and Savior. In his name I serve you.
It is important for you to know that. At this time of year nearly everyone is caught up in some expression of observance. For me, Christmas is the right word, because the child born in Bethlehem is the right person to worship and adore. It is he who gives inexpressible and eternal value to your child's life. In a world in which prenatal life is widely disregarded, your child's life is of supreme value to our Creator, and has been since conception. It is that moral conviction that forms my relationship with the students I coach for college admissions and financial aid. In other words, it is not so much the "where" of college, as the "who" the young man or young woman going to college.
I hazard a guess and declare that all of the high school students with whom I have worked know, beyond doubt, that I value and respect them sincerely. It is important to me that your child is affirmed and valued. A primary aim of my work is that all of the teenagers know someone believes in them as human beings, as persons of worth, loved and admired for who they are, more than for what they have accomplished (or will accomplish). Your child is important because your child is present among us.
The opportunity I have to engage with teenagers at one of life's crucial junctions is a privilege I would have no claim to except by the call of God on my life, and your parental permission in my life. For all of that I thank you, and our Lord this Christmas.
The Free Application for Federal Student Aid FAFSA is the primary portal by which nearly every
family must enter. Notice the words, because in the title is the first, and most common mistake. It is a free application, it is not an application for free financial aid.
In fact, the most common form of financial aid offered through FAFSA is a loan. The U.S. Department of Education reports $1.5 trillion (put 11 zeroes after that 5) in outstanding education loans. Below are examples of other, commonly made errors in completing the form.
- We already covered the first mistake above. It is a free application, it is not an application for free financial aid.
- Year Applied for: if you go to the FAFSA website now, and begin as a new applicant, it will ask for which year you are applying: 2020-2021, or 2021-2022. Current high school seniors are applying for 2021-2022.
- Social Security Number: don't guess! Know for sure, and double check you entered each one correctly; student SS#, and parent(s). Why the parenthesis? See subsequent bullet points below. FAFSA automatically sends the social security information to Social Security Administration to verify that there is such a number, and that the number is attached to the name submitted. There is an opportunity to correct an error, but it takes time.
- Student or Parent: The person creating the new application is asked to identify as the student or a parent. It does not matter which, but remember whose information you are providing. Both the student and the parent(s) are asked identical, personal questions. For example, "Are you married? Are you a military veteran?", etc. A common mistake is for the student to assume the question asks about his/her parent(s). Check the section of the application. You will see a tab labeled STUDENT, or a tab labeled PARENT. Remember which section you are completing. Also, since the U.S. Supreme Court' ruling on same-sex marriage, the FAFSA form changed from "Father, Mother" to "Parent 1, Parent 2." Keep track of which you list as #1, and #2. It will matter later.
- Divorced or a Widow/Widower: Are you divorced from your child's other parent? Are you legally separated? Did your spouse pass away? If you have not remarried, there is only one (1) parent as far as FAFSA is concerned. The point of confusion, with so many divorces in the USA, is a student living with her mom (for example) will list mom as Parent 1, and then the divorced father as Parent 2. Don't! Not for FAFSA. Have you remarried? Keep reading.
- Remarriage: when you remarried your new husband, or new wife just signed on to help pay for the college education of all the children from your first marriage. That spouse should be listed as Parent 2. Sorry, but that's the way the rules are written.
- Tax Returns: Prior-Prior-Year was inaugurated during the Presidency of Barack Obama. That is when the first filing date was moved up from January 1 to the previous October 1. The easiest way to remember is this: You are completing FAFSA in the Fall of the Year. Which is the most recent tax return you were supposed to have filed earlier that year, by April 15? For example, you are completing FAFSA in December, 2020. Your student plans to enter college Fall Semester, 2021. The tax return FAFSA wants is 2019. (Start college 2021; tax return from prior-prior year is 2019.) FAFSA uses the Data Retrieval Tool to make it simple. Click to allow the DRT. There will be double verification requested. The appropriate tax return is uploaded, and you are returned to FAFSA.
- Login and Save Code: write down (somewhere you can find it easily) the usernames and passwords you create; and the save code, too. You will need them repeatedly, now and in future years.
One reason students don't receive all the financial aid they could is due to mistakes on their FAFSA. FAFSA with errors are returned for correction. Meanwhile, financial aid is being handed out, first-come, first-served.
You are at, or about to begin the winter break that coincides with Christmas and Hanukkah. For most of you there are (+/-) fourteen days in which to do as you please. It might please you, if you're a tenth-grader intending to go to college, to write out your plan for college selection, and to set that plan in motion.
In my book, College is a Consumer Purchase (available here), are listed the most common mistakes people make regarding college admissions and financial aid. Among those mistakes is they wait too long to start.
This article is intended specifically for students in the middle of their tenth grade year. A common perception is there is plenty of time before you have to start thinking about college.
Reality check! Twenty to twenty-four short months from now you will be receiving letters of acceptance (or not ugh!).
Two years when you say it that way it sounds like a long time. Twenty-four months? Not so much. Think about everything else you are packing into those two dozen, thirty-day windows of opportunity. There are (at least) eighteen months of school, with homework. There are family vacations, sports games or dance, and similar activities. There are parties to attend, friends to hang-out with you get the picture, right?
Here is a suggested outline of what your plan might look like:
December, 2020 complete a professional career assessment. We use the Birkman Profile, administered by LEAProgram, Cincinnati, OH (www.leaprogram.com). It is worth every dollar.
January & February 2021 study and assimilate your Birkman report. Begin exploring the career suggestions, hyperlinked in the document.
March & April, 2021 continue to explore career options, and also identify college majors that would logically prepare you for those career tracks. For example, what major would you choose to prepare you to become an optometrist?
May & June, 2021 begin identifying colleges that are strong in majors you are considering. Universities, in particular, offer a broad array of majors. They do not support those departments equally, however. For example, a university that graduates 500 business majors is going to direct more resources that way, than to its social sciences department that graduates 20 per year.
July & August, 2021 Delve more deeply into colleges that look attractive. Contact them. Learn what are their key considerations for admissions.
September & October, 2021 Which entrance test will you take SAT or ACT? Do the colleges on your list have a preference? Ask. What is the score on either of those tests that will put you in the top 25% of applicants.
November & December, 2021 You are a year into now, and you are beginning to get a clear picture of why you are going to college (that is, what you will do with that education and diploma). You should also have a family conversation about what you can afford by what of annual, out-of-pocket costs.
January & February, 2022 Enroll in an SAT/ACT preparation class. That will consume most of the extra time you have for six to eight weeks.
Why do colleges send "Spring Semester Acceptance" letters?
Are you familiar with the phrase "hedging your bets"? It describes a strategy whereby you reduce your risk of loss. You bet on more than one winning option, and reduce your chance of total loss.
By offering some students Spring semester, rather than Fall semester admission, colleges are hedging their bets.
Colleges seek to fill every seat in the new, first-year cohort. Some of those students, a few, will drop-out, flunk-out, die (horrible thought); for whatever reason, create vacancies for the Spring semester. Colleges are not guessing, but rather forecasting based on decades of records.
A Fall semester drop-out represents a loss of revenue in the Spring. A Spring admit solves that problem.
Stats every college keeps them; and every college has to report them. The statistics in focus for this discussion are retention rates and graduation rates.
Both datum are required to be kept only on first year, Fall admits. Therefore, transfer students and Spring admits are not considered.
Spring admits are students who, by the college's reckoning, are less-well qualified academically and, therefore, more likely to leave the school short of graduation.
Your student has received a Letter of Acceptance, but for the Spring and not the expected, Fall semester. What does that mean?
Your student is considered marginally qualified as a scholar for the college's academic rigor. In plain English, the college thinks they may be too hard for your kid. If you have other acceptance letters for the upcoming Fall semester, those options should be strongly considered.
Your student will receive little or no financial aid, beyond what the family qualifies for based on financial need. The "scholarships" will have been given out to the Fall class. Even some federal dollars may be in short supply until the following Fall semester. That may be made up with financial aid in the form of loans (not really aid, but considered aid in the game of higher education).
Most important, in this author's opinion, is the dilemma of what your student will do from June until the end of January. Students enrolling in a community college should check with the four-year school as to how those credits will be handled. Will your child now become a transfer student? Historically, that further impacts financial aid offered. Work? A great option, especially if your students saves most of the money for college expenses.
Finally, and related to that last fact of what to do with the time, it is highly likely your student will not find the transition to be smooth. There are so many things shaping a student's experience of Fall semester admissions that simply cannot be replicated for the Spring admit. I am not speculating, but rather relating the experience of the few students I know who went ahead with a Spring semester matriculation.
Bottom line: decline Spring admission. Your child has better options.
Want to know the top 5 mistakes to avoid when sending your student to college? Be sure to grab your copy of our free download by clicking the button below!
Why do colleges "Wait List" some students?
The answer is found in the principle that colleges are selling higher education services, and parents are the customers. That means that Letters of Acceptance are issued primarily for the benefit of the colleges. They accept who they want, when they want, how they want.
Colleges track their admissions data very closely, over decades of time. Those large numbers give them a very accurate picture of how many letters of acceptance are needed in order to fill every seat available. Remember, each seat in a first-year cohort is worth hundreds of thousands of dollars over the course of the student's education.
In the administrative offices, "yield" is the number of students who actually matriculate from among the greater number to whom letters of acceptance were sent. Let's take some easy numbers to help your understanding.
Big Time College plans for a first-year class of 2,000. Their historic yield is 50%. Therefore, they sent out 4,000 letters of acceptance, and notify another 1,000 they are on the Wait List. Suppose this year they miss their yield by 1%; 20 students. Big Time College's wait list is now accessed. Starting at the top, they go down the list until they find the 20 students who will accept an offer of admission.
What is the top? The wait listed students are ranked academically from most-well-qualified to less-well-qualified. Those at the top of the list probably missed by inches a letter of acceptance in the first place.
Should you wait on the wait list? Probably not.
You will never know how close to the top you are.
You will not find out if you are chosen until the deadline for commitment has passed for the other colleges that accepted you.
Is there a scholarship awarded with your Letter of Acceptance?
Students who submitted college applications weeks ago are receiving Letters of Acceptance already. Those affirmations make everyone happy. Congratulations!
It is not uncommon, not at all, for a scholarship to be awarded along with the acceptance letter. That is also a good thing and, again, congrats.
What is it not, however?
It is not truly a scholarship as much as it is a discount off of the price. In other words, no money will ever exchange hands. The college is just offering to charge you less.
It is possible the scholarship is for only the first year; not renewable for years two, three and four. Be sure to ask.
It is contingent. Contingencies include your senior year of high school grades, your personal deportment both in school and in your community (i.e. don't get busted for doing something stupid) and whether you commit by any deadlines mentioned in the letter.
Finally, and most important, it is not the final and formal offer of financial aid. That will come, typically, in late March/early April.
What is that scholarship then?
An enticement to commit before you hear from any other colleges.
Therefore, wait. Wait until at least the end of 2020. By then you will likely have heard from every college to which you applied. If, by then, there are schools from which you have no formal letter of acceptance (or denial of admission) call the school(s) and check on the status of your application.
That last thing reminds me to remind you to check NOW with every college on your list. Make certain they have every requirement in hand. Don't wait. Deadlines are hard stops in college admissions.
|Older Posts »|
- The Best Way to Pay for College
- What Every Parent and Student Needs to Know About FAFSA (Free Application for Federal Student Aid)
- How Much is a College Education Going to Cost You, Really?
- Navigating the Pathways of College Admissions and Financial Aid in 2021
- Merry Christmas! Your Child and the Christmas Child
- 8 Common Mistakes to Avoid When Completing FAFSA (Free Application for Federal Student Aid)
- Gear Up, Tenth Graders
- Apply for Fall, Get Spring Semester. Why do colleges send "Spring Semester Acceptance" letters?
- Why do colleges "Wait List" some students and what to do if you're on the wait list
- Is There a Scholarship Awarded With Your Letter of Acceptance?
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