10:48 - Student Lending Analytics Blog



10:48 |freep:  Welcome, Freepsters!

| |

|10:49 |freep:  We're getting situated, so please feel free to send on your financial aid question and we'll get read to answer |

| |them. |

|10:49 |freep:  Our expert today is Mark Kantrowitz, publisher of and a nationally recognized expert on financial |

| |aid. |

|10:49 |freep:  He'll start answering your questions at 11 a.m. |

|10:51 |freep:  You can get started by checking out Susan Tompor's column from today on the subject |

|10:51 |freep:  Susan Tompor: Families look harder to cover college costs |

|10:53 |freep:  And just FYI, questions are moderated so you won't seen your question right away |

|10:59 |Jewel:   |

| |This is Jewel Gopwani, a business writer with the Detroit Free Press. I’ll help moderate the chat today. Here is a |

| |question sent to money@. |

| |Amy asks: |

| |I was wondering what the usual income limit was for  a Pell Grant, or does it differ from school to school, year to |

| |year? I have two children in college and an unemployed husband.   Last year, one of my daughters received a Pell Grant |

| |but not the other daughter.   This year, although our income dropped a little, neither of them received a Pell Grant. |

| | |

| | |

|11:00 |Mark Kantrowitz:   |

| |Excellent question. |

| |  |

| |While there is no firm income cutoff on eligibility, 98% of Pell Grant recipients have family AGI of $50,000 or less. So|

| |an increase in family income could explain why both children did not qualify this year even though one did last year. |

| |But that does not explain why one qualified for a Pell Grant and the other didn't. |

| |  |

| |There are a variety of factors that could have affected Pell Grant eligibility for one child but not the other. Pell |

| |Grant eligibility is based on the Expected Family Contribution (EFC), which is based on the sum of the parent |

| |contribution and the student contribution. A difference in EFC for the two children due to a difference in the student |

| |contribution could cause one to have an EFC above the eligibility threshold and the other below it. The student |

| |contribution is based on 20% of the student's assets and 50% of student income above the income protection allowance |

| |(IPA). The IPA was $3,080 last year and will be $3,750 this year. So a difference in their income or assets could be |

| |responsible and would be my best guess given the circumstances as described. |

| |  |

| |Also, two years ago  the Pell Grant was subjected to tuition sensitivity. A difference in the tuition charged by each |

| |child's school could be responsible. This was repealed by the College Cost Reduction and Access Act of 2007. |

| |  |

| |Another common cause, though clearly not the case for this family, is when the number of children in college changes. |

| |Usually (but not always) an increase in the number of children in college will cause an increase in Pell Grant |

| |eligibility. Most often this is noticed when one child graduates, causing the sibling's EFC to increase. |

| |  |

| |Finally, it is possible that there was an error on one child's FAFSA that did not appear on the other child's FAFSA, or |

| |one school may have granted a professional judgment adjustment for an unusual family financial circumstance and the |

| |other college did not. I'd suggest comparing the EFCs as reported on the Student Aid Reports and then comparing the |

| |FAFSAs as submitted. Any difference between the two could be responsible. Especially look for digit transpositions in |

| |income figures. |

|11:01 |Jewel:  Thanks, Mark. Here is a question from Laurie: |

| |Both my husband and I are fortunate to still have our jobs, however, what happens if one or both of us find ourselves |

| |unemployed after we submitted the FAFSA for this year? Our son is in his first year at MSU. |

| |Also, are there any options for middle class families whose buying power has greatly diminished but still find ourselves|

| |as not qualifying for financial aid? |

| | |

| | |

| | |

|11:01 |Mark Kantrowitz:  The Expected Family Contribution is based on the prior tax year. For example, if you are submitting a |

| |FAFSA for the 2009-10 academic year, it will be based on 2008 tax year data. If there is a change in family financial |

| |circumstances from last year to this year, regardless of whether it occurs before or after you submit the FAFSA, you |

| |should contact the college to ask for a "professional judgment review". Sometimes this is called a "special |

| |circumstances review". This includes unemployment of a primary wage earner for the family or even a decrease in income. |

| |It helps if you provide a copy of any third party documentation relating to the unusual circumstance, such as a copy of |

| |the layoff notice. The college has the authority to make adjustments to the inputs to the need analysis formula to |

| |compensate for unusual circumstances. The amount of the change will be based on the financial impact of the unusual |

| |circumstance. For example, if one parent has been laid off the school will not only want to adjust for the loss of |

| |income, but will also take into consideration any severance pay and unemployment benefits expected to occur during the |

| |academic year. That being said, they will also consider changes in the other parent's income. So if one parent is laid |

| |off but the other parent gets a big raise, both changes will be considered. Also tell the school about any unusual |

| |expenses, such as high unreimbursed medical bills. If an expense is not discretionary in nature the school is more |

| |likely to make an adjustment for it. The bottom line is you should always contact the school's financial aid office if |

| |there is anything unusual about your family's financial circumstances, whether an unusual expense or a change in income.|

| |  |

| |As a middle income family you should look into the education tax benefits, such as the Tuition and Fees Deduction |

| |(recently extended through the end of 2009), the Hope Scholarship and the Lifetime Learning Tax Credit. You will most |

| |likely find the Hope Scholarship to be the most beneficial of the three, but you should examine each of them to see |

| |which is best for your specific financial circumstances. |

| |  |

| |Also, everybody, regardless of income or financial need, qualifies for the unsubsidized Stafford loan and for the Parent|

| |PLUS loan. |

|11:02 |Jewel:   |

| |Here’s another question sent to the freep: |

| |  |

| |What type of colleges (public or private) would be more likely to provide the most financial aid based on merit? My |

| |granddaughter is a junior in high school, does very well in standardized tests and is taking all advanced level college |

| |prep courses and has about a 3.95 GPA. |

|11:03 |Mark Kantrowitz:  The colleges that aren't as well known are more likely to provide academic scholarships in order to |

| |attract talented students like your granddaughter. We list several at |

| |scholarships/academicscholarships.phtml |

|11:03 |[Comment From Frank C]  |

| |I recently filed a FAFSA for my graduating senior. What's the best way to follow up with the schools he is interested in|

| |to see what funds may be available to him? |

|11:06 |Mark Kantrowitz:  The colleges that admit him will send you a "financial aid award letter" sometime in late March or |

| |early April. This will list a package of various awards available to him, including federal, state and institutional |

| |grants, need-based loans and work-study. |

| | |

| |If there are any unusual family financial circumstances, such as a change in finances from last year to this year, or |

| |any unusual non-discretionary expenses (e.g., unreimbursed medical bills, private secondary school tuition) bring them |

| |to the attention of the college by sending them a separate letter. Do not include the letter with your FAFSA. |

| | |

|11:06 |[Comment From Guest]  |

| |My daughter does not qualify for financial aid because of my income. That does not mean we can afford the tuition |

| |because of other financial obligations. What should we do? |

|11:09 |Mark Kantrowitz:  First, write a letter to the college asking for a "professional judgment review" and provide |

| |information about the financial obligations to the school. It's entirely up to the discretion of the school, but if they|

| |school decides that the circumstances merit an adjustment, it might lead to increased aid eligibility. |

| | |

| |Other suggestions include: |

| |1. Search for scholarships on free web sites like . |

| |2. Use the education tax benefits, such as the Hope Scholarship, Lifetime Learning Tax Credit, and Tuition and Fees |

| |Deduction. |

| |3. The unsubsidized Stafford loan and the PLUS loan are available to all families, even those who do not have financial |

| |need. |

|11:09 |[Comment From Chris]  |

| |If you have to take a student loan is it a requirement for the parent to co-sign? |

|11:12 |Mark Kantrowitz:  Federal student loans, like the Perkins and Stafford loan, do not have cosigners. There is no need for|

| |the parent to cosign these loans, nor can they. |

| | |

| |The Parent PLUS, a federal loan for parents of undergraduate students, is borrowed by the parents, not the student. |

| | |

| |Private student loans, on the other hand, allow and encourage cosigners. It is a good idea for the parents to cosign |

| |such loans even if the student can qualify on his or her own. The lenders use the higher of the two credit scores not |

| |only to determine not only eligibility, but also the interest rates and fees. So if the parents have a better credit |

| |score than the student, as is usually the case, cosigning the loan can reduce the cost of the loan. |

| | |

| |Because of the credit crisis many lenders that offer private student loans have tightened their credit underwriting |

| |criteria, requiring a higher FICO score to qualify. They are also requiring more borrowers to have cosigners. For |

| |example, in 2007 Sallie Mae had a cosigner rate of about 50%, while in 2008 this increased to more than 2/3. |

|11:13 |[Comment From Guy]  |

| |I inherited some money from a parent's estate last year, and used most of it to pay off debts. This is a one-time thing |

| |and does not reflect my typical annual income. People have said I should contact each school my child is applying to |

| |individually to let them know of my situation. Do you agree with that advice? |

|11:15 |Mark Kantrowitz:  I agree. This is a good example of an unusual circumstance that justifies a professional judgment |

| |review. An inheritance is a one-time event that is not reflective of ability to pay during the award year. Many colleges|

| |will make an adjustment to disregard it as income but will still count it as an asset so that you aren't |

| |double-penalized for the one-time event. Of course, if you've already spent the inheritance to pay down debt before |

| |filing the FAFSA, it won't show up as an asset on the FAFSA. |

|11:16 |[Comment From Frank C]  |

| |Is there a threshold of total family savings, college savings plans, other investments, etc. that a student should not |

| |realistically expect any assistance? |

|11:22 |Mark Kantrowitz:  Not really. The need analysis formula is complicated and there are a lot of aspects that can cause a |

| |family that has high income to nevertheless qualify for some aid. For example, the number of children in college has a |

| |major impact on aid eligibility. The more children in college, the lower the EFC. This is because the parent |

| |contribution is divided by the number of children in college. The EFC is heavily weighted toward income, and so ability |

| |to pay is split among all the children. |

| | |

| |It's a little known fact that only 4% of dependent students have any contribution from parent assets. Many parent assets|

| |are sheltered by the formula, including money in qualified retirement plans, the net worth of the family's principal |

| |place of residence, small businesses owned and controlled by the family, and an asset protection allowance based on the |

| |age of the older parent (typically $50,000 for most parents of college-age children). Even if you're among the 4%, the |

| |worst-case impact on aid eligibility is 5.64% of unsheltered parent assets above the asset protection allowance. |

| | |

| |Also, filing a FAFSA is a prerequisite for the Stafford loan. Everybody qualifies for an unsubsidized Stafford loan, but|

| |the federal government requires you to submit the FAFSA in order to make sure you don't also qualify for other forms of |

| |aid. |

| | |

| |So even if you're earning $250,000 a year and have a lot of assets, it is still worthwhile to file the FAFSA. |

|11:22 |Jewel:   |

| |Here’s a question sent to the money@: |

| | What are the key factors for divorced parents that can influence the ability to receive financial assistance through |

| |FAFSA and similar formulas? |

|11:23 |Mark Kantrowitz:  In the case of a student with divorced parents, only one parent's financial information is reported on|

| |the FAFSA. This parent, called the custodial parent (not necessarily the parent who has custody), is the parent with |

| |which the student lived the most during the twelve months ending on the date the FAFSA is submitted. If the student |

| |lived with neither parent more, then it is based on whichever parent provided more support to the student, which is |

| |usually the parent with the greater income. (A student might have lived with neither parent more in a joint custody |

| |situation where there is an even number of days in the year (e.g., a leap year), or when the divorce was recent, or when|

| |the parents are living together after the divorce.) |

| | |

| |Colleges will verify custody arrangements by asking for a copy of the divorce decree. |

| | |

| |A separation will be treated the same as a divorce. However, an informal separation (as opposed to a legal separation) |

| |requires that the parents do not live together, so the college may ask for proof that the parents maintained separate |

| |residences, such as copies of leases or mortgage statements. Living with friends or in a hotel room (or if one parent |

| |travels frequently on business) doesn't count. |

| | |

| |By excluding one parent's income usually the student will qualify for more aid. |

| | |

| |Often the colleges will ask the non-custodial parent to complete a supplemental form for awarding the college's own aid.|

| | |

|11:23 |[Comment From John]  |

| |With two kids in college next year, will I see an increase in the amount of aid available to them next year? |

|11:28 |Mark Kantrowitz:  When the number of children in college increases from one to two (or more), usually the family sees an|

| |increase in the amount of aid available. There are some esoteric situations in which a family with very low income might|

| |see a slight decrease, but in most situations the family will see an increase. |

| | |

| |Here's a hypothetical example to illustrate. Suppose the parent contribution for one child in college is $20,000 and the|

| |student contribution is $5,000. That child has an EFC of $25,000 ($20,000 + $5,000). When the number of children |

| |increases to two, they roughly split the parent contribution in half. So each child will have a family contribution of |

| |$15,000 ($20,000/2 + $5,000). Financial aid is based on financial need, which is the difference between the cost of |

| |attendance and the EFC. Let's assume that the cost of attendance (COA) is $30,000. So when one child was in college, |

| |that child would have financial need of $30,000 - $25,000 = $5,000. When there are two children in college, each has |

| |financial need of $30,000 - $15,000 = $15,000. That's a big jump in aid eligibility. |

| | |

| |This is why it is better to have twins than children who are separated in age by 4 years. Twins get more aid, all else |

| |being equal. Likewise siblings who are very close in age get more aid. It's an artefact of the formula. |

|11:28 |[Comment From Brian]  |

| |Is there a maximun income for the parents to qualify for student loans |

|11:31 |Mark Kantrowitz:  Eligibility for the Parent PLUS loan does not depend on income. It does, however, require that the |

| |parents not have an "adverse credit history". This includes having had a foreclosure, repossession, tax lien, wage |

| |garnishment, bankruptcy or certain other derogatory events on the credit history for the past five years, or having a |

| |current delinquency on any debt of 90 or more days. It does NOT depend on their credit score. |

| | |

| |Private student loans may have minimum income thresholds for cosigners and borrowers and may have maximum debt-to-income|

| |ratios for cosigners. They do not, however, have a maximum income limit. In fact, if the parents have high income they |

| |are more likely to qualify for a private student loan. |

|11:31 |Jewel:   |

| |Here’s a question sent to he freep about the Michigan Education Trust, which allows for tuition to be pre-purchased for |

| |a Michigan resident to any Michigan Public university, college or community college. |

| |  |

| |Our daughter is finishing up her first year at Michigan State. Luckily, we have a MET to cover her tuition, but we are |

| |paying for room and board, books, fees, etc. |

| | |

| |Is she eligible to apply for scholarships and grants even though she is not a freshman? Do you have any websites or |

| |contacts to pass along regarding this? |

| | |

| |Also, I filled out the FAFSA last year and she was told she wasn't eligible for any funds, and with her father being |

| |retired, we thought she would be. Exactly what good is the FAFSA? What does the household income need to be? Are the |

| |FAFSA funds like a scholarship/grant or do they have to be paid back? |

| | |

| |Any insight you could pass along would be greatly appreciated. |

| |  |

|11:34 |Mark Kantrowitz:  Many private scholarships are available to students who are already enrolled in college.   So search |

| |free scholarship databases like . |

| | |

| |Also, don't forget to apply for federal student aid every year. Financial circumstances can change each year, and |

| |Congress enacts changes to the need analysis formula frequently. For example, the amount of money a student can earn |

| |before it affects their aid eligibility will be increasing by $750 a year for the next few years. Federal student aid |

| |includes grants, loans and work-study. |

| | |

| |Also look into education tax benefits which give you some money back on your income tax return for college costs. |

| | |

| |Note that many scholarships may have a cost of attendance limit and some may be limited to tuition. Since the MET pays |

| |for tuition, you may find that some awards are not available to you. For example, the Tuition and Fees deduction is |

| |limited to tuition and fees, as the name suggests, so that education tax benefit may not be available to you. On the |

| |other hand, distributions from 529 college savings plans can be used to pay room and board expenses since such plans |

| |have a broad definition of qualified higher education expenses. |

|11:34 |[Comment From Steve]  |

| |Unfortunately I lost my job two weeks before I completed my MBA. I took student loan to pay my tuition expenses. Now |

| |that I don't have a job and the job outlook is soo grim and my repayemnt starts in May of this year. What should I do? |

|11:39 |Mark Kantrowitz:  The first thing you should do is call the lender(s) to tell them about your situation and ask about |

| |your options. You should always talk to them before you default, since you lose options if you default. |

| | |

| |There are a variety of options on federal education loans. You can use an alternate repayment plan, such as extended |

| |repayment to reduce the size of the monthly payments. Extended repayment reduces the size of the monthly payments by |

| |increasing the loan term. (This will, however, increase the total interest paid over the lifetime of the loan. For |

| |example, going from a 10 year term to a 20 year term on a 6.8% Stafford loan cuts the monthly payment by about a third, |

| |but increases the total interest paid over the life of the loan by a factor of 2.18.) |

| | |

| |Another option is an economic hardship deferment or forbearance. These are periods of time of up to three years during |

| |which your monthly payments are suspended or significantly reduced. Interest continues to accrue, but is added to the |

| |loan balance. It is not a good idea to use a deferment or forbearance for an extended period of time because the loan |

| |will just keep on getting bigger and bigger. But if you're actively looking for work and can't afford to make the |

| |monthly payments, a short deferment or forbearance will not do much harm. |

| | |

| |Private student loans also offer forbearances, but usually limited to up to a year. |

|11:40 |[Comment From Tahnee]  |

| |Is full financial aid still available for students with a low income level? For example, if the total bill is $20,000, |

| |can a student get aid for that amount? |

|11:43 |Mark Kantrowitz:  Low income students often qualify for significant amounts of aid. For example, a dependent student |

| |with family income of under $30,000 will usually qualify for an automatic zero EFC. This yields the maximum amount of |

| |financial aid. |

| | |

| |At most colleges students receiving financial aid are first subjected to a "self-help level" which is met through |

| |work-study and need-based loans. Then any remaining need is often met mostly through grants. (Of course, if the student |

| |qualifies for the Pell Grant and other federal/state grants they get them, as those are first-dollar awards.) |

| | |

| |There are more than five dozen colleges, mostly elite colleges, that have adopted generous financial aid policies that |

| |eliminate loans from the financial aid package, replacing them with grants. At such a college a student with a 0 EFC |

| |would graduate with no debt. |

|11:43 |[Comment From Marcia]  |

| |Are books deductible on income tax returns? |

|11:46 |Mark Kantrowitz:  Textbooks are not currently deductible on federal income tax returns. However, the US House of |

| |Representatives just passed legislation (still pending in the Senate) which would amend the definition of a qualified |

| |higher education expense for the Hope Scholarship tax credit to include "course materials" in addition to tuition and |

| |fees. By "course materials" they mean textbooks and other college-required expenses for class supplies. |

|11:46 |[Comment From Jessica]  |

| |I am currently applying for graduate schools and I am wondering what recommendations you have about the best places to |

| |look for scholarships, loans, grants, etc for potential graduate students? |

|11:47 |Mark Kantrowitz:  The web site not only includes undergraduate scholarships, but also graduate fellowships, |

| |teaching assistantships and research assistantships. You should also submit the FAFSA at fafsa.. |

|11:47 |[Comment From Guest]  |

| |With the skyrocketing cost of a higher education, is it even worth getting a 4 year degree if you are going to paying |

| |off that financial aid for the next 10 years? What is going to be done about those costs? |

|11:47 |Jewel:  Thanks for your questions, everyone.   We have received lots, so if you haven't seen your question posted, don't|

| |worry, Mark will get to it. |

|11:48 |freep:  And FYI, this page will transition to a replay of the live blog as soon as it ends. So you can come back at any |

| |time and recap all the questions and answers. |

|11:54 |Mark Kantrowitz:  It is still worthwhile to obtain a bachelor's degree. For most students the increase in lifetime |

| |income exceeds, on a net present value basis, the net cost of their education and the opportunity cost of not working |

| |during the college years. |

| | |

| |You may have heard of the Census Bureau figure that lifetime earnings for a bachelor's degree are $1 million more than |

| |for someone with just a high school diploma. I updated this figure to $1.2 million using the same methodology in July |

| |2007. While some may argue about the value on a net present value basis, all agree that it is still financially |

| |worthwhile to obtain a college education. There are also other benefits of obtaining a college education. See |

| |educators/higheredbenefits.phtml for additional details. |

| | |

| |That being said, the cost-benefit tradeoffs can depend on the amount of debt, the field of study and the college you are|

| |attending. If you are spending $100,000 to get a degree for a job that will pay only $40,000, you should think seriously|

| |about switching to a less expensive college. Degrees in business and engineering and computer science (or other |

| |scientific fields) pay better than degrees in art or humanities. |

|11:54 |[Comment From Marcia]  |

| |Can I report on my taxes the losses incurred on my 529 plan? |

|11:56 |Mark Kantrowitz:  Yes and no. In order to report the losses on your 529 plan you must completely liquidate the plan and |

| |offset those losses with any gains from distributions on other 529 plans you may own. Then the losses are deducted as a |

| |miscellaneous deduction, subjected to the 2% of AGI threshold. |

| | |

| |On the other hand, if your 529 plan is in the red and you take a nonqualified distribution, you will not only not owe |

| |the 10% tax penalty but also owe no income tax on the distribution. The income tax and tax penalty are assessed only on |

| |the plan's net earnings, which are attributed to distributions pro-rata. If there are no earnings, there is no income |

| |tax on the distribution. |

|11:56 |[Comment From Barney]  |

| |Is is better to submit FASFA now (since our 2008 taxes have not been submitted) and go back and correct the FASFA, or |

| |wait until we have completed our 2008 Tax Return? |

|12:00 |freep:  Thanks for your questions, everyone! We won't be able to take any more, but will do our best to work through |

| |those already submitted. |

|12:00 |Mark Kantrowitz:  Don't wait until you've completed your 2008 federal income tax return. There are many states with very|

| |early deadlines, and some colleges have priority student aid deadlines, so it is best to submit the FAFSA as soon as |

| |possible after January 1. You should try to get the figures in the right ballpark, but will have an opportunity to |

| |correct any errors (and will be required to do so) later. |

| | |

| |To get the figures in the right ballpark, start with your W2 and 1099 statements. Also look at the last paystub of the |

| |year and the last bank account and brokerage account statements. Also take a look at your 2007 income tax return to make|

| |sure you aren't overlooking any particular type of income, such as capital gains, interest and dividend income, etc., |

| |and to make sure your figures are not too far off. |

| | |

| |Of course, you could always complete your income tax returns early. |

| | |

| |This year companies have until mid-February (February 17) to mail W2 statements and 1099s. In previous years the |

| |deadline was end of January. So you may receive your W2 statements and 1099 forms two weeks later than usual. |

|12:00 |[Comment From Guest]  |

| |We were thinking of starting a 529 for young child; given the market does this make sense? Or should we wait to see what|

| |happens? |

|12:05 |Mark Kantrowitz:  You should start saving for college as soon as possible. While there may be further losses this year, |

| |it is difficult to predict the market bottom (called "timing the market") except in hindsight. If you set up the plan to|

| |make regular automatic monthly contributions you will get the benefit of dollar cost averaging. This means that when the|

| |market is down, like it is now, your investment will buy more shares which will ultimately be worth more. |

| | |

| |I have two very young children and both had losses of 25% in their 529 plans. I have not, however, changed their asset |

| |allocation (both are using age-based asset allocations) and I am continuing to contribute to their plans every month. |

| |Pulling out now would just lock in the losses. Moreover, in any ten year period the stock market is pretty much |

| |guaranteed to drop significantly, so it is not unexpected to have some losses for a few years. But my children have a |

| |long time to recover from these losses before they enroll in college, and the dollar amount of their losses is |

| |relatively low, given that the savings early on are not as big as the savings they will have when college is imminent. |

|12:05 |[Comment From Julianne STroud]  |

| |I have about $40,000 of equity in my home, is it wise to use that for my daughter's college education. My daughter does |

| |not qualify as well for finnacial aid due to our income. But we have other financial obligations that make me think this|

| |is the only place to get the money. And is it true that no student can get a student college loan anymnore? |

|12:13 |Mark Kantrowitz:  Although mortgage companies like to spin home equity loans and lines of credit as though you are |

| |"tapping into the equity in your home", the reality is that these are loans. So you need to consider several issues |

| |before deciding whether to rely on a home equity loan or HELOC. |

| | |

| |1. What is the interest rate on the home equity financing? How does it compare with the federal Stafford and PLUS loans?|

| |Note that up to $2,500 in interest paid on education loans is deductible on your income tax returns as an above the line|

| |exclusion from income, so you can take that deduction even if you don't itemize. |

| | |

| |2. What are the consequences of default on the loans? If you default on a home equity loan you could lose your home. If |

| |you default on a PLUS loan, your home is safe. The federal government may have strong tools for collecting defaulted |

| |federal education debt (e.g., garnisheeing up to 15% of wages, attaching income tax refunds, etc.) but they can't |

| |repossess or foreclose on your child's education. |

| | |

| |Please note that federal education loans are still available. These include the Stafford and PLUS loan. You can get them|

| |even if you don't qualify for aid. Congress enacted the Ensuring Continued Access to Student Loans Act of 2008 to help |

| |avert a crisis in the federal student loan system. You should always borrow federal first, as federal education loans |

| |are cheaper, more available, and have better repayment terms than private student loans. |

| | |

| |Private student loans, on the other hand, have become much less available. 39 of the 60 lenders offering such loans have|

| |suspended their loan programs and those that remain have tightened their credit underwriting criteria and increased the |

| |interest rates by 2% to 4%. But most families should be able to obtain sufficient Stafford and PLUS loans to pay for the|

| |full cost of education, so private student loans are usually not necessary. (The main circumstances in which families |

| |borrow private loans instead of federal are when they are unaware of federal borrowing options, when the student is not |

| |making satisfactory academic progress and so has lost aid eligibility, when the school has opted out of the federal loan|

| |program because of a high default rate, and international students who are ineligible for federal education loans.) |

|12:13 |[Comment From John]  |

| |With two students in college next year, should I expect an increase in aide available, even if my income was too high |

| |for aid with the first student? |

|12:15 |Mark Kantrowitz:  This is similar to a previous question. Even if you did not qualify for financial aid with one child |

| |in college, it is possible that having two children in college will cause both of them to qualify. A lot depends on the |

| |specific financial circumstances. I suggest using an EFC calculator such as the ones on to play "What If" |

| |games, such as increasing the number of children in college to see the impact on aid eligibility. |

| | |

| |But you should always apply for financial aid each year, since the formula is complicated enough and details change each|

| |year, so failing to qualify one year doesn't give any indication as to whether or not you will qualify the next year. |

|12:15 |[Comment From douglas]  |

| |im 27, a waiter, and according to my w2 made more than 34,000 last year. i fear i may not qualify for enough grants, if |

| |any, to allow me to finish college. what do you suggest i do in filing my returns and fafsa to maximize the amount of |

| |money i receive. |

|12:20 |Mark Kantrowitz:  If you will be quitting the job while you are in college, tell the college and ask for a professional |

| |judgment review. Even though this is a voluntary reduction in income, colleges understand that students may need to |

| |reduce income to focus on schoolwork. (After all, while working 15 or fewer hours a week will improve academics by |

| |forcing you to learn time management skills, working more than 15 hours a week will hurt your academic performance by |

| |taking away time from studying.) |

| | |

| |The FAFSA is heavily weighted toward income. Assuming you were not required to file a 1040, with an income of less than |

| |$50,000 yoiu will qualify for the simplified needs test, which causes assets to be disregarded. If your income were less|

| |than $30,000, you would have qualified for an automatic zero EFC. There's not much you can do about your income from |

| |last year, but look into the Tuition and Fees Deduction. This reduces your AGI and depending on exactly how much you |

| |earned, you might be able to use it and other exclusions from income to reduce your AGI below the $30,000 threshold. |

|12:20 |[Comment From D. Schmidt]  |

| |My son is currently a sophomore in a private school and the only way that we can afford it is via the financial aid |

| |package he has enjoyed. My current position has just been elimated so I will be unemployed shortly. Are there any |

| |significant reductions for next year that could jeperdize his current package (Pell Grant, Perkens Loan, Stafford)? |

|12:24 |Mark Kantrowitz:  First, you need to talk to the college to ask for a professional judgment review to compensate for |

| |your reduced income due to your impending layoff. (The British have a much more elegant way of putting it: "made |

| |redundant".) |

| | |

| |The good news is the House just passed a stimulus bill that includes significant increases in student aid, including a |

| |$500 increase in the Pell Grant, a $2,000 increase in the unsubsidized Stafford loan, and a $700 increase in the Hope |

| |Scholarship. This legislation is still pending in the Senate, and the current Senate version is not as generous. But the|

| |Senate is expected to vote on their version next week, and the final legislation will likely still include some |

| |improvements in student aid. I wish they would increase the Pell Grant more, but something is better than nothing. |

| | |

|12:24 |[Comment From Guest]  |

| |If I apply for financial aid now, how long will it take before I find out if I am approved? |

|12:26 |Mark Kantrowitz:  If you submit the FAFSA online at fafsa., you will likely get your Student Aid Report (SAR) from|

| |the government in 2-3 weeks. The colleges you list on the FAFSA then use this information to assemble a financial aid |

| |package. How long this takes varies from college to college, but in most cases newly admitted students will receive a |

| |financial aid award letter in late March or early April. |

|12:26 |[Comment From Guest]  |

| |I am losing my job a 2 weeks. My daughter is a graduating senior. Will I be able to qualify for a parent student loan |

| |while unemployed? What if my credit rating is impacted during my unemployment? |

|12:29 |Mark Kantrowitz:  You will be able to qualify for a Parent PLUS loan even if you are unemployed. Thanks to the Ensuring |

| |Continued Access to Student Loans Act of 2008, you can defer repayment on the Parent PLUS loan while your daughter is in|

| |school and for six months after graduation. Then you will need to start making payments on the loan. |

| | |

| |Private student loans, on the other hand, do require the borrower or cosigner to have current employment. So loss of |

| |your job may affect your eligibility for private student loans. |

| | |

| |Loss of a job will not affect your credit score so much as failing to pay your bills and debts on time as per the |

| |agreement. Try to avoid being late on any debt. It is very hard to get a good credit score, but very easy to turn a good|

| |credit score into a bad one just by missing or being late on a few payments. |

|12:29 |[Comment From David]  |

| |My son is 21 but is on his own because he flunked out of college and burned through the college fund we had saved. Can |

| |he qualify for aid, or does my income have to be factored in? |

|12:31 |Mark Kantrowitz:  A student is considered to be a dependent student until age 24. (Students who are married, in graduate|

| |school, have a dependent other than a spouse, in the military or a veteran, or certain other circumstances will qualify |

| |for independent student status.) So unless he qualifies as an independent student, your income will still need to be |

| |reported on the FAFSA until he's age 24. (The age 24 threshold is as of December 31 of the award year. So someone |

| |submitting the FAFSA now for the 2009-10 academic year who will be 24 before the end of the year is independent.) |

|12:31 |[Comment From Tim]  |

| |Can you explain the differences between the Hope Scholarship, Lifetime Learning Tax Credit and Tuition and Fees |

| |Deduction? |

|12:37 |Mark Kantrowitz:  The Hope Scholarship provides a tax credit of up to $1,800 for the first two years (both tax and |

| |academic) of postsecondary education. It is 100% of the first $1,200 in tuition and related expenses and 50% of the |

| |second $1,200. It is a per-student tax credit. The Lifetime Learning tax credit is a per-taypayer tax credit that is up |

| |to $2,000, and is 20% of the first $10,000 in tuition expenses paid by the taxpayer. There are coordination restrictions|

| |that prevent double-dipping. In most cases the Hope Scholarship is better   if the family qualifies for both, since few |

| |families have enough tuition expenses to qualify for the full amount of the Lifetime Learning tax credit. (Any expenses |

| |paid by scholarships don't count for the deduction.) |

| | |

| |The Tuition and Fees Deduction is an above-the-line exclusion from income for up to $4,000 in tuition expenses. It |

| |reduces your AGI and can be taken even if you don't itemize. The value of the deduction in reducing taxes depends on |

| |your tax bracket. If you are in the 25% tax bracket, for example, it can be worth up to $1,000. Some families will |

| |prefer this deduction because it reduces the AGI and so may trigger other benefits that depend on AGI. It also has |

| |higher income phaseouts than the Hope Scholarship and Lifetime Learning Tax Credits. (This may change, as may the amount|

| |of the Hope Scholarship.) The Tuition and Fees deduction will expire at the end of the 2009 tax year unless extended by |

| |Congress. |

|12:37 |[Comment From Liz]  |

| |We have 4 kids, one in college, a senior , all 4 have 529's that have lost significant value. We are filling out a FAFSA|

| |for our senior, am I correct in my understanding that the other 529's have to be listed as investments for this child |

| |even though they "belong" to the siblings? Is there a place on the form to explain that these are designated for the |

| |other kids and are unavailable? And, will there be a transcript available for this chat? |

|12:38 |Jewel:  Just a reminder, this page will transition to a replay of the live blog as soon as the chat ends. So you can |

| |come back at any time and recap all the questions and answers. |

|12:40 |Mark Kantrowitz:  529 plans where the parent is the account owner and custodial 529 plans (where the student is the |

| |account owner) must be reported as parent assets on the FAFSA if the student is a dependent student. If the student is |

| |an independent student only 529 plans owned by the student are reported. 529 plans owned by grandparents are not |

| |reported on the FAFSA. |

| | |

| |The CSS Financial Aid PROFILE, which is used by about 300 private colleges, has a different treatment, requiring 529 |

| |plans that name the student as a beneficiary to be reported. |

| | |

| |There is no place to explain that the 529 plans belong to siblings. This is a federal requirement and colleges do not |

| |have the authority to exclude 529 plans that belong to siblings. |

|12:40 |[Comment From Guest]  |

| |Is it typically true to assume that although private university's tuition can be considerably more than a public |

| |university, if one maxes out their financial aid (EFC = 0 for instance), that the private university will cover a larger|

| |% of the tuition in grants and other forms of aid? |

|12:45 |Mark Kantrowitz:  It is correct that more expensive colleges often provide more financial aid than less expensive |

| |colleges, so the net cost (cost minus all need-based aid) is often the same. However, whether that aid is mostly grants |

| |or mostly loans depends on the college. Some of the more elite colleges have adopted policies that substitute grants for|

| |loans in the financial aid package, making their out-of-pocket cost (cost minus need-based aid excluding loans) less |

| |than even some public colleges. |

| | |

| |When evaluating financial aid offers you should focus on the out of pocket cost, since this is the amount you will have |

| |to pay from income, savings and also future income in the form of loans. A college with a lower out-of-pocket cost will |

| |cost you less than a college with a higher out-of-pocket cost even if the net cost is the same. |

| | |

| |See FinAid's section on Financial Aid Award Letters and also the Award Letter Comparison Tool for more information on |

| |out-of-pocket cost and net cost. |

|12:45 |[Comment From Linda]  |

| |I have two questions. My husband and I make a good income. However, our daughter goes to school in Atlanta at about |

| |$30,000 per year. We currently owe $50,000 in financial aid loans. She does not qualify for need-based scholarships or |

| |merit-based scholarships. At the rate that we are currently going, we will owe $100,000 when she graduates. What advice |

| |do you have for us? |

|12:47 |Mark Kantrowitz:  A few suggestions: |

| | |

| |1. Take advantage of the education tax benefits, such as the Hope Scholarship, Lifetime Learning Tax Credit, and Tuition|

| |and Fees Deduction. |

| | |

| |2. Is your daughter borrowing from the Stafford loan program? If not, she should borrow to the limit before you borrow |

| |from the PLUS loan program, since the Stafford loan has a lower interest rate and fees. |

| | |

| |3. Consider having her transfer to a less expensive college. There are many good colleges that don't cost as much. |

|12:47 |[Comment From Linda]  |

| |My niece lost both of her parents. Will she automatically qualify for financial aid? |

|12:49 |Mark Kantrowitz:  Orphans are automatically considered independent students. As such her financial aid will be based |

| |only on her own income and assets. Often in such situations the student has little income and so will qualify for an |

| |automatic zero EFC, which will mean qualifying for a significant amount of financial aid. |

|12:49 |[Comment From Marcia]  |

| |My daughter will be applying to graduate school for the 2010 winter term at U of M. Does she still fill out the |

| |2009/2010 Fasfa and send it in now, even though she will not be attending in the fall, but in the following semester |

| |(winter term)? |

|12:51 |Mark Kantrowitz:  I am not sufficiently familiar with Michigan state aid for graduate students to know whether the March|

| |1 deadline for Michigan state aid involves any aid for graduate students. I don't think it does, but I'm not 100% |

| |certain. If it did, then you would want to submit the FAFSA now. If it doesn't, she can wait until she applies for |

| |admission to submit the FAFSA. It doesn't hurt to submit the FAFSA now. As a graduate student she will be independent |

| |and should complete the FAFSA to indicate this. |

|12:52 |[Comment From Fran Costos]  |

| |I have a sophomore and a senior in high school and have been saving for their college tuition since they were born. I |

| |saw their accounts drop 33% recently. I don't think they'll qualify for financial aid. What can we do now to make sure |

| |that we can afford they can go to a great 4-year university? Are there scholarships that they can apply for now? |

|12:55 |Mark Kantrowitz:  There are many scholarships available for high school students. Search free web sites like |

| |to find the awards that match your children's profile. Or better yet, get them to search. (There are even scholarships |

| |for elementary school children. But no scholarship matching service list scholarships for children under age 13 because |

| |of the Children's Online Privacy Protection Act. However, you can find a list of all such awards on .) |

| | |

| |You should continue saving for their college education. Hopefully the stock market will start improving in the second |

| |half of 2009, so maybe you'll be able to make back some of the losses. |

| | |

|12:55 |[Comment From Jon]  |

| |My question is in regard to the MET. I recently purchased MET contracts for 2 of my 3 children. Have held off on the |

| |third because I am nervous about the stability of the fund that is used to pay for the fees when they enter college. I |

| |have examined the fund and seems to be secure and stable but I am not knowledgeable enough to determine if this is a |

| |safe investment. Interested in your thoughts on the security of the MET contracts. Thanks, Jon |

|1:01 |Mark Kantrowitz:  Most state prepaid tuition plans, like MET, are not backed by the "full faith and credit of the state". |

| |So the guarantee is only as good as the fund. However, I doubt that any state will allow a state plan to fail since the |

| |public outcry would be bad politics. |

| | |

| |Most prepaid tuition plans use a fairly stable balanced investment strategy to avoid placing the investments at risk. They|

| |use actuaries to ensure that the returns are sufficient to fulfill the guarantee and adjust the contribution rates |

| |accordingly. Some state plans suffered the same 25% to 35% losses that individual investors faced in the stock market. So |

| |there is reason for concern. But I think it is ok to continue investing. (Please note that I am not able to give you |

| |individual investment advice and must speak in generalities.) |

|1:01 |[Comment From Neil Currie]  |

| |This is more at the end of the rainbow, but my son finishes college in April. I have utilized the FALSA site and have had |

| |loans the past four years. What do you suggest I do in terms of consolidating loans to make a single payment as time goes |

| |on. Is there a better interest rate available by doing the paperwork a particular way? |

|1:07 |Mark Kantrowitz:  Federal loans originated before July 1, 2006 have variable rates. Consolidating them locks in the |

| |current rate on the loans. I believe that the new rates that go into effect on July 1, 2009 will be among the lowest in |

| |the history of the loan program, so wait until the end of May to see what the rates will be (there should be news stories |

| |about this topic), then compare them with the current rates. If the new rates are better, wait until July 1, 2009 to |

| |consolidate. You can consolidate with the federal government at loanconsolidation.. |

| | |

| |Consolidation gets you a single payment. It also gets you access to alternate repayment plans that decrease the size of |

| |the monthly payment by increasing the loan term (and consequently, increasing the total interest paid over the life of the|

| |loan). |

| | |

| |But consolidation doesn't get you a better interest rate, other than by locking in the interest rates on variable rate |

| |loans at the current rate. If that happens to be a very low rate, it will save money over the life of the loan. If you |

| |have only fixed rate loans, consolidation does not save you any money. |

| | |

| |There are also options for reducing monthly payments that don't require consolidation. You can get up to 25 year extended |

| |repayment without consolidating if you have more than $30,000 in debt with a single lender. Most lenders will also offer |

| |unified billing if all your loans are with the same lender. Starting July 1, 2009, there's a new repayment plan called |

| |income-based repayment (best for borrowers with high debt and low income) that is available even if you don't consolidate |

| |your loans. |

| | |

| |Private student loans cannot be consolidated with federal loans. There are four lenders that currently offer private |

| |consolidation loans, but these all have variable rates. So there is not any financial benefit to consolidating private |

| |loans. |

|1:08 |[Comment From Steve]  |

| |I currently have a wife and daughter in college, full and part time. i am on Layoff and want to go back myself in the |

| |spring. Should I apply for financial aid immediately? |

|1:11 |Mark Kantrowitz:  Yes, you should apply for financial aid. Since you will be attending in the spring you should submit the|

| |2008-09 FAFSA in addition to the 2009-10 FAFSA for yourself. These will require 2007 and 2008 tax data, respectively. The |

| |2008-09 FAFSA will be for the spring 2008 semester. The 2009-10 FAFSA will be for fall 2009 and spring 2010. |

| | |

| |Also, ask all of the colleges for a professional judgment review and provide them with documentation of your wife's |

| |enrollment and your enrollment in college. While children in college is automatically reported on the FAFSA, parent |

| |enrollment is a professional judgment item subject to the discretion of the school. The school will want to see proof that|

| |you really are enrolled. |

|1:11 |[Comment From Phil]  |

| |My son has been accepted to UM Ann Arbor. Pating forcollege wasnt going to be too hard because we had $61,000 in a 529 |

| |plan and my wife and i were making $110,000 collectivelly. But.....Now his 529 is worth $32000 and my income is the same |

| |right now but there is a high probability I will either be losing my job (I make $90000) or taking a 20% pay cut. Will my |

| |son qualify for any grants or will it be all loans that he will have to pay back? Thanks |

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download