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Are Schools Using Aid to Lure Wealthy Students?

Are Schools Using Aid to Lure Wealthy Students?

moneybagA recent CNBC report highlights a quiet, but growing, concern in the higher-education community: schools may be offering more scholarship money to wealthy students and less to students from lower-income backgrounds.

While the study shows that schools—most especially private institutions—must operate as businesses, it also highlights the importance of scholarships and grants for higher education.

The Study

The 2013 Sally Mae study, titled “How America Pays for College,” surveyed undergraduate students (aged 18-24) and found a couple changes in payment methods for students and their families over the last several years. Based on their observations and interviews, the researchers found that:

  • Parent spending has declined post-recession (27 percent in 2013 compared to 37 percent in 2010) and the average parent contribution has declined by 15 percent since 2010.
  • More students depend on scholarships and financial aid.
  • A greater number of families take out additional actions to make college affordable (e.g., taking out a second job, seeking out grants, etc.)
  • Despite a recent recession and growing costs, the majority of American families surveyed still believe in the value of college.

The increasing significance of grants and scholarships for student expenses is highlighted by the study, which proclaims that “the post-recession reality appears to be that grants and scholarships have replaced parent income and savings as the major contributor to paying for college.” The majority of scholarships come from colleges themselves (61 percent of families surveyed received scholarships this way).

The most interesting finding of the study, though, focused on the distribution of scholarship money from institutions. As noted by CNBC, “36 percent of students from wealthy families received scholarships averaging $10,213 for the school year, while 35 percent of students from families earning less than $35,000 a year received scholarships worth an average of $7,237.”

Granted, this data may be affected by a number of different factors—merit-based scholarships do not typically take family income into account, for instance—but the research is upsetting enough to leave some educators and families wondering whether universities are targeting and enticing wealthy students with scholarship aid, while not offering as much funding to students in need.

Are Lower-Income Students Being Left Behind?

Despite the findings of the study, lower-income students still receive a large amount of financial aid from schools. In this past year, 19 percent of high income families (those making more than $100,000 per year) received federal grants that averaged $5,757. On the other side of the spectrum, a whopping 63 percent of low income families (those making less than $35,000 per year) received federal grants that averaged $6,170.

Scholarship amounts offered by schools are painting a different picture, however. Because scholarships can be granted by the institution—not by the government—the school is not obligated to take financial considerations into account. As such, most schools offer myriad “merit based” scholarships (presumably to students most deserving based on their academic, and not their financial, standing). When these scholarships are taken into account, it would appear as though colleges are granting more aid to those who least need it.

Schools as Businesses

While this makes matters more difficult for students from low income families, it’s hard to fault the academic institutions too heavily. Universities are simply trying to continue a successful cycle. This is especially in the case with private schools.

Private universities rely on donations from alumni and families, so “investing” in high-income families is a smart move. In an exploration of this concept, the New America Foundation issued a study titled “Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind,” which asserted that scholarships for the wealthy are part of an institution’s “relentless pursuit of prestige and value.” According to CNBC, schools may also be using these scholarships to entice “highly-qualified” students (or, students with outstanding scores, competitive academic honors, etc.) who may even be from higher-income families and who may not qualify for need-based grants.

The New America Foundation also makes the point that it is more profitable for a school to provide four $5,000 scholarships to affluent students than one $20,000 scholarship to a single low income student. This places universities in a tricky situation as they try to balance future resources with current academic integrity and rewards.

Finding Support

So are students from lower- and middle-income families left facing a future without aid from competitive or private universities? Probably not. This general lean towards the affluent is only with regards to scholarships. Low income families still have pole position—as well they should—when it comes to federally issued student loans and grants. While policy makers and educators may need to refocus their efforts on finding ways to make higher education possible for people from all backgrounds, students should take from this new research a newfound reliance on performing a wide search when it comes to scholarships and aid.

About The Author:

Today’s guest article comes from Candice Mahoney. She is an engineering student and freelance blogger, currently residing in Houston, Texas. With help from a variety of scholarships, she has been able to pursue her dream education in the field of engineering project management, and is eager to apply her skills towards large-scale construction projects.

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What Every Student Ought to Know About Repaying Debt

What Every Student Ought to Know About Repaying Debt

student-loans-building-blocksStudent loans are a unique form of debt. Under heavy government intervention and complicated legislation, they follow different rules than car loans and mortgages. They can be daunting and confusing. And since you don’t have to pay them back right away – as long as you’re still getting a full-time education – it’s easy to put off thinking about how you’ll repay them. But it’s important to consider that up front because payment day will come, even if you don’t get your degree and even if you don’t get a job right after college.

Here are the most important points to consider about repaying your student loan debt.

Late Payments and Credit Scores

Student loans are like other loans in at least one way: Late payments will negatively affect your credit score. Both private and public lenders report your payment history to the credit bureaus, so the more you are late, the worse your credit will be.

While this may seem like a small problem now, if you still have a ways to go with college, it could end up costing you thousands of dollars later when you need a loan for a house or a car. Lenders will charge you higher interest rates because they will think you are “risky” and less likely than others to pay them back on time. Even worse, too many late payments or a default on a student loan will make you ineligible for some loans, meaning you might not be able to buy that house or that car a few years down the line because you didn’t manage your student loan debt.

Why Bankruptcy Is No Help

If you ever fantasize about never having to pay back your loans because you think filing for bankruptcy will clear all your debts, stop dreaming. While people do seek bankruptcy protection – as a last resort – when their amount of debt outweighs their ability to pay it back and can see a reduction in the amount they owe after negotiating with their creditors, this does not work with student loans. All student loans, even private student loans, cannot be discharged in bankruptcy. Private loans used to be able to get discharged, but Congress changed the law in 2005.

So what happens to your student loans if you declare bankruptcy? Nothing. They stay there, and you still have to pay them. They may go in default, but you will still have to pay the interest that accrues, whether you pay your monthly payments on time or not.

The only way to get out of paying student loans in the United States is to die (even then, depending on the type of loan, your co-signer or spouse may have to pick up your tab).

Deferment and Forbearance

Fortunately, there is another way to get some relief from student loans if your financial life collapses: Deferment and forbearance are two ways that lenders will allow you to postpone paying your student loan payments until you get back on your feet.

With public student loans, you simply need to fill out a form online. If you qualify, you can postpone your payments for a few months. You can qualify if you are unemployed and looking for work, if you are studying at least half-time at a college (or full-time in grad school), or if you meet the U.S. government’s standards for “economic hardship.” In special situations, you can request a postponement of monthly student loan payments even if you don’t qualify under the normal terms.

With private loans, deferment and forbearance is a little harder to get. Private student loan providers can defer loans at their discretion, so you will need to contact your lender and provide documentation and a good reason for why you want to defer your payments. Lenders will work with you, but be prepared to answer a lot of hard questions and have the documents to back up your request.

Income-Based Repayment Plans (IBR)

Students who are employed but earn less than $65,000 per year may qualify for a new government program called “income-based repayment,” which offers a sliding scale of monthly payments that are calculated according to your family size and annual income. You can use this calculator to see what your monthly payments will be.

IBR payment plans can help you if you are in a low-income household, but you will still have to make payments on your loans and enrolling in an IBR plan may mean it will take you longer to pay off your student loans.

Budgeting and Credit

While it’s good to know the consequences of not repaying your student loans on time – and the solutions for making up for any inability to pay – you’re much better off, of course, meeting your obligations. That’s why should get in the habit of spending wisely and coming up with a spending budget now, so you can be smart about your money – and your bills – when you do graduate. Spend this time building up a strong credit history, and you’ll be setting yourself up to repay your student loans in a fair amount of time.

Today’s guest article comes from Cassy Parker at CreditDonkey.com.

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Tips to Avoid Financial Aid and Scholarship Scams

Tips to Avoid Financial Aid and Scholarship Scams

ScamsApplying for scholarships and grants can be a stressful time; you’ve got different forms to fill out, you’re worried about college, and, on top of it all, you’re dealing with the most stressful subject in the world: money. While scholarships and financial aid are two of the best ways to pay for school, prospective students should be wary of potential scholarship scams. According to Whitworth University, scholarship scams cost students and their families an estimated $100 million dollars every year. Here are five tips to help you avoid being scammed in your search for college aid:

Never Divulge Sensitive Information 

Lots of scams are based around securing your personal information. This occurs routinely with scams like identity theft, but can also happen in scholarship searches. While financial aid information such as your FAFSA pin number and social security number may be required for your FAFSA forms, it should never be required to apply for scholarships.

Never Pay for FAFSA 

FAFSA stands for Free Application for Federal Student Aid.  If you’re confused, their customer service team is there to walk you through any and all questions you may have. Many groups and programs will offer to fill out your FAFSA for you for a fee. While there are some scholarship organizations that legitimately aim to help students get their FAFSA filled out or locate scholarships—and may charge some fees—they should have enough information available to help you make an informed decision (such as a physical address and other contact information, and ideally a proven track record or history with third-party reporting or review companies). Avoid working with a company or scholarship search organization when red flags, including sales pitches and pressure, are present.

The New York Times also cautions students and parents to make sure they are on the right website when filling out the FAFSA. Parents and students should fill out their FAFSA on FAFSA.ed.gov.

Unsolicited Information 

According to CollegeBoard.org, you may be encountering a scholarship scam if the organization promises or guarantees you a scholarship, or if you receive unsolicited emails informing you that you’ve been selected to receive a scholarship. Scholarships are great ways for students to get “free” money for school, but they must be earned through applications and, often, essays and other projects. Be wary of spam emails telling you that you’ve won money for school or guaranteeing you a scholarship.

Do Your Research 

There are a limited number of people, organizations, and websites that you should trust when you are going through this process.  The Federal Student Aid Office of the United States Department of Justice has plenty of information on reputable organizations.

You can also do a bit of background research on your own. According to US News and World Report, you should never trust a scholarship offer if there is no clear history of past winners, no phone number, or if the scholarship organization claims to “do all the work for you.” Legitimate scholarship organizations or search services will present a student with a number of scholarships that the student is eligible for (sometimes even for a small fee), but will not do the work for the student.

Work with the Officials

Scott Weingold, in his report with The Huffington Post, warns students to try to reach out to officials whenever possible. Weingold offers an example of spam emails telling students there was an issue with their FAFSA. If you receive an email like this, do not respond to the email—instead, revisit your FAFSA or contact someone from the Department of Education. Likewise, any issues with your scholarship information should be handled with the organization itself, not a third-party.

Applying for financial aid and scholarships doesn’t need to be an overly stressful time. It should be exciting; after all, it’s the start of the next big journey in your life. However, to avoid falling for a scholarship scam, make sure that you are level-headed, informed, and never give out personal information to those who don’t need it.

This article was contributed with inputs from Jodelyn Guerrero, a career expert who hopes to help you get started with the first steps to start your career. She recommends taking a look at the finance jobs with moneyjobs.com if you’re interested in a finance position after graduating.

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Get A Sneak Peek At The 2014-2015 FAFSA Form!

Get A Sneak Peek At The 2014-2015 FAFSA Form!

The FAFSA is the single most important instrument that a student/family should utilize to access funds for college. The FAFSA (Free Application for Federal Student Aid) is responsible for gathering information related to the assets and income of families and their students, churning it through a lengthy calculation (you can download a copy of the 36 page formula here), and spitting out an EFC (Estimated Family Contribution).

That EFC figure is then sent to all the colleges and universities designated by the student during the FAFSA application process. This is where the magic happens! 😉 Those colleges and universities will take that information and start going to work on putting together a comprehensive financial aid package for you that includes need-based and merit-based awards, a work-study component, and usually a federal direct student loan option.

Officially, you can not file your FAFSA until January 1st of 2014. You can submit the paper option (access a draft of 2014-2015 FAFSA here) but I recommend that everyone complete their FAFSA online at www.FAFSA.gov. You may be tempted to go to FAFSA.com, however, even though they will gladly file your FAFSA, they will also charge you about $80 for their services. Remember, the first “F” in FAFSA stands for FREE.

Submitting your FAFSA online provides you the ability to save any work that you completed and return to it later. In addition, the Department of Education has implemented skip-logic technology to make sure that you only answer the questions that are applicable to your situation. Lastly, the online FAFSA has a new IRS Data Retrieval Tool (DRT) that gives families the option of importing their IRS tax information directly into their FAFSA. This has been a great resource for FAFSA filers but it has not come without its glitches (see articles below):

As you are starting to gather your information together to prepare for filing your FAFSA, please don’t hesitate to utilize the resources here on CheapScholar.org to help you along the way. Here are a few articles that may prove to be helpful (and one that is a little humorous):

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What is Financial Aid? 5 Facts That You Should Know

What is Financial Aid? 5 Facts That You Should Know

financialaidFinancial Aid refers to a variety of programs that families use to pay for college. Many families are aware that Financial Aid exists but they know very little about it. To get families started, here are 5 things you need to know.

Financial Aid Fact 1: There are 4 different types of financial aid

  • Need Based Aid: This consists of grants, low-cost loans which don’t accrue interest while in college and work-study programs which are awarded based on a student and families financial need. These programs are usually funded by the federal and state government.
  • Non-Need Based Aid: These are scholarships and grants from private entities awarded on a variety of factors including course of study, student activities, athletics or other affiliations like family background.
  • Merit Aid: Scholarships provided by colleges and universities based on academic performance, test scores or other attributes.
  • Self-Help Aid: Low cost student loans that accrue interest while in college from the federal government, private loans from banks and credit unions or on and off campus jobs.

Financial Aid Fact 2: More people qualify than you think

At public colleges and universities over 60% of students are on some form of student financial aid. That increases to 75% at private colleges and universities. All families should take the time to apply to see what they might qualify for.

Financial Aid Fact 3: Deadlines

You do have to apply to receive student financial aid. The main application form is the Free Application for Federal Student Aid (FAFSA) which is available in January for the upcoming year and should be completed by March 15 if you want to be considered for a broad array of programs.Your school may also require the CSS Profile form. Be sure to check with the college’s financial aid and admissions office. Scholarships have deadlines so make sure you check when you get the application and note the due date on your calendar.

Financial Aid Fact 4: Student Loans will not ruin your life

Every day you read about a student who cannot make their student loan payments. You might have read that the average student has $27,000 in debt.  As a result you may think you should completely avoid student loans. The truth is that the median student loan debt is only $13,000 and there are a variety of federal programs that will help you keep your payments low after you graduate.

Financial Aid Fact 5: Financial Aid can help make even the most expensive college affordable

Some families might think that because they haven’t saved for college they should only look at low cost college options. That is not necessarily the case. If you apply for financial aid on time, look to the multiple scholarship opportunities available and use student loans wisely you can find a way to afford the college of your child’s dreams. Apply and receive your financial aid award letter from colleges and universities you apply to, then make the best financial and academic decision for your family.

About the Author:

Today’s guest article comes from Craig P Anderson, who has been working in the Higher Education Finance Industry for over 20 years. He is a Student Loan Expert and has worked for a variety of student loan providers including Chase and Sallie Mae. He also worked in the Financial Aid Offices of the University of Florida and St. Petersburg College and has served on several industry boards. You can read more from him at www.CommonSenseStudentLoans.com or follow him on Twitter @CraigPAnderson .

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Consequences of Defaulting on a Student Loan

Consequences of Defaulting on a Student Loan

Education budgetThe cost of education is something that many people have to get student loans to be able to afford, which can be a lot of debt. What happens when you default on a student loan though? Do you know what you can do? Many people do not understand the implications that going into default on a student loan have, and they can happen to you relatively quickly if you miss a payment on your student loan. It is something that you want to avoid.

It does not take much to go into default on a student loan, and missing payments can get you in default quickly. The federal government, lenders and other financial institutions have different means to collect student loans. This is something that can have more of a negative impact on your life then almost any other type of debt that you can accrue.

What Is Student Loan Default?

When you miss a payment, or you have been late on payments for your student loan, you are at risk of defaulting on your student loan.  When you make a student loan, you sign a document that is called a promissory note. This is the legal document that describes the terms of your loan. It will tell you the allowance that you have for making payments late, and if payments are missed. When you miss a payment, or if your breach this contract, your student loan will go into default.

Going into default on your student loan can be a big problem. It can cause you to owe debt collectors thousands of dollars on your default loan. When your loan goes into default, the financial institutions that gave you the loan and the federal government can take legal action to seek repayment of your loan. Many people do not realize these consequences until that have gone into default on a student loan.

What Happens When You Go Into Default on a Student Loan?

Going into default on a student loan has serious implications. You may find yourself ineligible for additional federal education loans. This can mean that all the hard work that you have done, could be at risk if the school does not let you complete your educational program because you are unable to secure an education loan to cover your balance. There is also the fact that this type of loan default can seriously scar your credit report for many years to come. It can also cause you to have legal troubles when the federal government and lenders take legal action against you.

The impact that defaulting on your school loan has on your credit can effect many different things. It may cause problems when you go to get utilities, need certain insurance policies, or want to rent an apartment. These are some of the problems that you may face many years after you have defaulted on your loan. It is something that will follow you for a long time.

What Can You Do To Avoid Defaulting On Financial Aid?

It is obvious that one of the best ways to avoid problems with student aid, is to not miss a payment. You should always try to make your payments on time. If you are going to be late with a payment, or you are having trouble paying it on time, you should contact the lender that gave you the loan. They can usually help you with your loan, and are willing to help you avoid defaulting on your loan. The lender wants their money, so it is of their best interest to help you avoid delinquency.

Here some additional resources from CheapScholar.org to help with your loan repayment options:

Times Up On 6 Month Grace Period For Student Loans

5 Student Loan Repayment Strategies Worth Considering

Repayment Options For Federal Loans (video)

 

About the Author:

Today’s guest article comes from Andrew Deen. He is a writer who creates informative articles in relation so the field of law. In this article, he explains the process of defaulting on a student loan and aims to encourage further study with a Champlain Masters in Law.

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4 Things to Know and Consider Before Accepting a Student Loan

4 Things to Know and Consider Before Accepting a Student Loan

Education budgetWith tuition costs rising just as quickly as the cost of living, it’s no wonder many college students turn to student loans to help them with their education expenses. But, not all student loans are the same in terms of repayment and interest. So, before you cash in that student loan check, here are just a few factors to consider.

1. There’s Free Money Available

Before you commit to student loans, interest rates, and repayment plans, you should first research what types of grants and scholarships are available. Although these forms of financial aid are a bit more difficult to attain than common student loans, they also don’t require repayment.

There are different kinds of grants available for need-based students, exceptionally talented students, specific areas of study, and industry sponsored grants for students with certain degree types. Likewise, there are state-funded scholarships available that cover tuition for students that keep a certain GPA during high school.

2. Loan Types

If student loans are the financial path you’re heading towards, then it’s important to keep in mind what types of loans are available. Generally, there are two types of student loans: federal and private.

Managed through the U.S. government, federal loans are the best option for students. They give the fairest rates and terms and are also federally regulated and backed by the government.

Independent banks manage private loans, so they aren’t subject to federal rules and regulations. What this means for the borrower is variable interest rates and non-flexible, strict repayment plans and harsh penalties. Therefore, private loans aren’t recommended unless necessary.

3. Interest Rates

Federal loans come in two different interest categories — subsidized and unsubsidized. For subsidized loans, the government pays your interest while you’re enrolled in school. With unsubsidized loans, you pay the interest throughout the length of the loan from the first day of classes to the last day of repayment.

And, with interest rates ranging anywhere from 3.8% to 6.4% for federal loans, the interest that accumulates over the life of the loan could end up being more than the loan itself. If the accumulated interest does take you by surprise when it comes time for repayment, get in touch with Fisher Investments Private Client Group for a little financial help.

4. Repayment Plans

After you have your diploma in hand and your college years are behind you, it’s time to start repaying your student loans. Luckily, federal loans offer flexible repayment plans tailored to your post-graduate income.

Most federal loans are based on a ten-year repayment plan, with the possibility of extending the repayments to thirty years. And, another benefit of federal repayment plans is the fact there are no penalties when switching your repayment options, which is not the case with private loan repayment plans.

Likewise, federal repayment plans offer income-based payments and deferments for borrowers experiencing financial hardship. Keep in mind that whether it’s a federal or private repayment plan, the interest continues to gain for the life of the loan.

So, when it comes to covering the cost of college, it’s a good idea to keep the above student loan facts in mind.

 

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5 Best Practices For Completing The FAFSA

5 Best Practices For Completing The FAFSA

FAFSA-formStudent loan debt is now the second highest ranked consumer loan debt, next to mortgages, according to the New York Federal Reserve, with the amount of outstanding student loan debt exceeding $1 trillion in March of 2012.

Given this shocking number, it has become increasingly important to seek alternative or additional means of financing for a college education. Fortunately, financial aid is also available to students in the form of scholarships and grants. This is where the Free Application for Federal Student Aid (FAFSA) comes in. You need to complete and submit the FAFSA in order to be considered for financial aid such as the Pell Grant and various other scholarship programs. If any questions arise along the way, make sure to turn to a resource that can answer your important FAFSA questions.

While the FAFSA can be the key to receiving the financial aid you need, it is a lengthy form that requires a lot of detailed information, which makes it more likely you might fill something out incorrectly along the way. Unfortunately, one mistake could spell the difference between aid and no aid. Don’t allow your child to miss out on a valuable scholarship or grant because of a preventable error. Make sure to follow step-by-step instructions when filling out the FAFSA to avoid making a mistake.

Here are five important tips in completing the FAFSA:

  1. Plan your assets. A good type of asset to own when applying for financial aid is a retirement account such as an IRA or 401(k). These qualified retirement accounts, whether owned by you or by your child, are not counted at all in determining federal financial aid. Use caution, however, when withdrawing money from your IRA (or any retirement account) to pay for college. Though the tax law now allows penalty-free withdrawals from a traditional or Roth IRA to pay for qualified college costs, doing so could jeopardize financial aid in the following year. The entire withdrawal, principal and earnings, counts as income on the following year’s aid application.
  2. Move savings out of your child’s account. The idea here is that you really have to understand how the FAFSA formula works. The formula counts 2.6%-5.6% of a parent’s assets as being available to pay for college expenses and 20% of a student’s assets as an available financial resource. Basically, this means that assets belonging to the student result in a greater reduction in financial aid. By moving a child’s assets into an account that is not in their name, it will reduce the amount you have to report on the FAFSA.
  3. Submit your form early. Filling up the forms can be tedious but you shouldn’t put it off.  There are a lot of applicants seeking the same financial assistance as you. Therefore, it’s a good idea to submit your application as early as you can. If possible, submit before the deadline. This is not a good time to dally, because you might just lose out to the students who submitted ahead of you.
  4. Write a letter. Since the form itself is quite rigid, some families who experienced special circumstances can add a letter to talk about their situation (like the death of a parent or sudden job loss, for example). Back up the letter with proof and other documents to support it. A lot of colleges will consider what you have to say when deciding on your child’s financial aid package.
  5. Check and double check before submitting the form. It’s very easy to make a mistake when you’re filling out a complicated form. Have someone else check your form, too, in case you missed anything. It’s the easiest way to ensure that you got all the important details—and even the minor ones—correct.

Today’s guest article comes from the Student Financial Literacy team at iGrad.com.

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