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Help A Reader – Crazy Insane Student Loan Nightmare


I receive a number of questions related to the financial aspect of the college experience. I respond to many of the emails directly but every now and again I like to share some of the questions on CheapScholar.org so that we can all learn from each other and maybe provide a little bit of a support group for our fellow readers.

The following story was brought to me by a young man named Adam. As you read through his situation, you may think that his scenario is unique, a little scary, and maybe even quite hard to stomach. However, I assure you that Adam is not alone and there are certainly others that are experiencing similar situations – just not maybe quite as severe as Adam.

Read Adam’s story and feel free to leave any advice, comments, or questions below.

Dear CheapScholar,

This situation is going to sound very “cartoonish”, but I assure you it is no joke and a fact that I’ve just recently been slapped in the face with… I myself was brought up to highly value the dollar by my family so I still don’t quite understand people who abuse both money or “bad” debt (credit cards, auto loans, student loans & etc). By 27 years old I have saved very well on my own, pay my credit cards off in full every month, have an excellent credit score, hold a steady well paying job/career, have purchased and own multiple pieces of real estate, have a healthy 401K, have an active brokerage account I trade in frequently and other misc investments. Generally I am ALWAYS trying to learn how to invest and manage myself better financially; I have a spreadsheet for everything. I feel I need to give this brief background so that one can understand better, within a few sentences or so, the personal value that I place on managing one’s money.

The slap in the face came a few weeks ago when I made my girlfriend of 2+ years now, whom I love dearly and have planned to marry, start getting her college/student loans tallied up because she had just gotten a notice that one of them will be maturing soon and payment(s) due. I always knew she had student loans, and she always knew with 7 yrs of “private school” it’d probably be a larger but manageable number. Long story short, but it wasn’t long after going through her loans that my heart stopped and I went white as a ghost… but reality quickly snapped me out of the nightmare that  we just recreated on paper, and I realized how extraordinarily dreadful her and now our situation truly was. Her student loans are in excess of $340,000… That’s almost $50k/yr on average, an unfathomable amount…

The worst part about all this is that no she has not been training to become a Doctor or Lawyer. She got her undergrad, master’s and is now just finishing up an Advanced Education Specialist Degree, all in Psychology, and all of which will put her into a public school system paying her next to nothing. She is truly a sweetheart, is always wanting to learn/challenge herself educationally and has never (since I’ve known her) been careless spending with credit cards or the like. Her only real desire career-wise is to help everyday and work with mentally disabled K-12 students, she truly is a saint. In saying that, now her loans are plentiful, come from every conceivable lender, are comprised of every loan type and amount & most of which are unfortunately private rather than federal. I have plenty of moral and personal issues with this whole situation, but none of which I am willing to render an opinion on personally until I can help her figure out and start to climb out of this egregiously deep financial hole she has somehow gotten herself into. The story stems even deeper back to incredibly naive and irresponsible parents that created this loan nightmare for her; they “withdrew” or took out every loan disbursement amount and paid her tuition/expenses for her through the 7 years… My girlfriend, now only 25 years old, truly believed that a portion of her college had been being paid for by them and other family means, and that they certainly would have told her years ago if it was ever becoming a problem as terrible as this.

What boggles my mind, and I guess where my question(s) come in are how can the federal and private student loan entities possibly lend to one individual an amount of money this massive??? How has she racked up student loans of nearly $50k/yr??? To me these loan entities are borderline criminal, and seem completely vulturous in nature. Honestly this whole situation seems very similar to the Real Estate lending entities that have recently destroyed soo many lives/families/homes thru lending anyone and everyone home mortgages well outside of their financial wherewithal’s. I can only research soo much and have no idea which way to go from here. I don’t even know which way is up in all of this.

Any insight, direction or “miracle” would be wholly appreciated at this point… Please help!!! SOS!

Thanks,
Adam

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Know Your Assets – Good FAFSA Questions & Answers


When you go to complete the FAFSA, one of the important factors that helps to determine your EFC (Estimated Family Contribution) is assets. You always want to make sure that you accurately list all the required assets but it is to your benefit to not overstate any of your assets. For example, you should never include home equity or retirement savings in your asset calculation. But, you always need to include any cash, traditional savings, mutual funds, stocks, etc…

I recently received a few good FAFSA questions from a reader (related to assets) and I thought that it might be a good idea to share them here on CheapScholar.org.

Question 1: My family and I have a business that we run and I am wondering if we need to include the assets of that business on our FAFSA?
Answer 1: A small business that has less than 100 employees and is family owned and operated is not required to report its assets on the FAFSA. In addition, for FAFSA purposes, a small business does not need to be incorporated to be classified as a “small business”

Question 2: My family and I established a LLC and that entity currently owns the building in which our business resides. We rent it from the LLC. Does that building need to be included in my asset calculation for the FAFSA?
Answer 2: The quick answer is no. As long as the property is deeded to the LLC and not the actual family members AND the LLC qualifies as a small business,  you don’t need to report the building on your assets.  Now if the property was deeded in the family’s name, then you would be responsible for reporting your percentage of ownership of the asset on your FAFSA. So, if the building is worth $225,000 and you are one of three family members recorded on the deed, your reportable asset is $75,000.

Question 3: Our family (5 of us) owns a farm. We don’t reside on the property and we rent it out to farmers for agricultural use. Do we need to report the farm on the FAFSA as an asset?
Answer 3: Yes, you would have to report 1/5th of the asset value on your FAFSA. Typically family farms are excluded from the FAFSA but since you do not live on the property and you are not materially participating in the farming, it does not qualify as an asset exemption on the FAFSA. And… starting a small garden on the land doesn’t constitute “material participation” in the farming aspect! 😉  “Material participation” usually means that more than half of the family’s income is derived from the farming operation.

Question 4:
Our family (5 of us) has a cottage in Canada. Do we need to report that as an asset on the FAFSA?
Answer 4: Yes. You will need to report 1/5th of the asset value on your FAFSA as long as your name is one of the five on the deed and the cottage is not your permanent place of residence.

I think those were some tough questions.. or at least questions I don’t encounter on an every day basis. I appreciate the challenge.

If you think you have a tough FAFSA question that you would like to toss my way, please don’t hesitate to drop me a line. I always enjoy hearing from our readers and I am always glad to help!

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Filing For Divorce May Help FAFSA Results (EFC)


I routinely get emails from readers with various questions about paying for college, saving for college and the financial aid process. I encourage these questions because not only do I get the opportunity to assist a family but it also helps me to identify any trends in college funding that are impacting the families that I work with day in and day out. Some questions/answers I post on CheapScholar for all to learn from and others I just respond to directly.So if you ever have a question – drop me a line! I don’t have all the answers but I will do my best.

Here is our most recent Help A Reader question:

Question: My husband and I are going through the motions of what will ultimately end in a divorce. It has been fairly amicable and basically it is up to us when we want to pull the trigger and finalize the paper work. Given that we have a high school senior daughter that is going through the college search process, I would like to know if there would be any benefit (or penalty) on our FAFSA/Financial Aid based upon when we file for our divorce?

Answer: Going through a divorce or watching someone else experience a divorce is a sad moment for many. Reason being – all you can think about is how darn happy they were on their wedding day. However, through some series of events and life changing moments, the relationship ends in divorce. Ok.. enough of my Oprah Winfrey  moment…

A divorce can actually sometimes be a good thing when it comes to your FAFSA and the Estimated Family Contribution (EFC). The FAFSA states that it just depends on which parent the student decides to live with or gets the most support from. If they live with (or get the majority of their support) from the parent that has the most income and assets, then it will probably result in a higher EFC. However, if they live with (or get the majority of their support) from the parent that has the least income and assets, then it will probably lower their EFC and make them more eligible for need based financial aid.

So, to answer your FAFSA timing question…  Depending on who makes the most money and who is responsible for providing the most support for your daughter, a divorce may have an impact on your FAFSA situation. From a timing standpoint, if you decide that the divorce is going to favorably help your situation, you need to make sure that the paperwork is finalized PRIOR to filing the FAFSA. When you file the FAFSA, you have to answer the questions based upon your status at the time of filing (divorced or married).

If you are divorced the FAFSA states: “In case of divorce or legal separation, give information about the parent you lived with most in the last 12 months. If you did not live with one parent more than the other, give information about the parent who provided you the most financial support during the last 12 months or during the most recent year you received support. If your divorced or widowed parent has remarried, also provide information about your stepparent.”

I hope this information helps to answer your question. If you have a follow-up question to this one, please don’t hesitate to drop me a line or leave a note in the comment section below.

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Can Outside Scholarships Impact My Financial Aid?


I wrote an article earlier in the week providing 5 useful tips to help students find outside scholarships. Spurred by this article, I have received a few questions from readers about outside scholarships and I am glad to help.

A reoccurring question from families inquired about the how an outside scholarship can impact the financial aid package that they receive from the college or university that they are attending. The answer on this is unfortunately not a clear cut one and really depends upon a number of different variables (school rules, financial aid package, FAFSA results) but I will do my best to provide a proper answer.

The best scenario
that you can have with outside scholarships is that the funds you receive help to offset the financial expense that your family was expecting to put toward educational costs. This means that whatever you were expecting to spend for educational expenses (out of pocket) is now reduced by whatever you are able to secure in the form of outside scholarships. This is probably the most common outcome.

The next to best scenario… If you are receiving any need-based financial aid (calculated from your FAFSA results), you may be susceptible to losing some of that aid if you find extra funding from outside sources. It is up to the discretion of each school to decide what need-based aid they are going to reduce but most schools seem to lean toward decreasing the federal loan monies that a student will receive. It is not ideal but at least the student gets the benefit of finding the extra scholarship dollars and reducing the amount that they have to take out in loans.

The not so great scenario but pretty good given the situation…
If you have been able to secure the necessary funding (scholarships and grants) required to cover ALL your school expenses and you decide to go out and find yet another outside scholarship, your financial aid will have to be reduced by whatever dollar figure that new scholarship happens to be. The reason for this.. you can not receive more financial aid than the cost of attendance at your college.

If you find yourself in this situation, you may want to go back to some of your outside scholarship programs and ask them if you can defer the award until your second year of college. Chances are that some of your outside scholarships are probably only one-year awards (non-renewable) and won’t be available in subsequent years. If that is the case, you won’t be at risk of having your financial aid reduced during the second year because of over funding (like I said.. that is usually a good problem to have!).

All-in-all, outside scholarships are probably going to benefit the student in approximately 98% of situations. So, there is no reason why you should not put some energy and effort into trying to secure these types of funds. Every dollar counts when it comes to paying for college.

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Should I Negotiate My Financial Aid Package?


collegemoneyJust got this question from a reader and I thought it best to respond here since it is one of the more common questions I receive.

When you talk about negotiating your financial aid package it kind of cheapens your college experience because it sounds like you are wheeling and dealing on a used car lot. You will never be able to compare the value of your education to that of a used car but it is possible to look at the transaction with a similar approach.

The first thing you want to do is establish a trigger point that you feel would require you to negotiate your financial aid package. For some families the trigger point is just the mere fact that they didn’t get the amount of financial aid or assistance in which they were planning. For other families the trigger point is reached when they get an extremely generous financial aid package from one college and not the other (and they were kind of hoping to go to the “other” college).

Regardless of your trigger point, you should always drop a call to the admission office or the office of Financial Aid at the school of your choice and see if there is anything else they can do. The worst response that you will get is “NO”. However, a better response you can get is “Let us look into it”. The best response you can get is “You know what, I am glad you brought this to our attention. We agree your student is more deserving and due to some oversight they did not get the Presidential Award for $10,000. We will get that applied today!”

From experience, I can tell you that the 1st or 2nd response above is probably going to be the norm. The important thing to remember is that if you don’t ask, you more than likely will not be able to garner anything extra in the form of scholarship assistance.

As your student is going through the college search process, they will be interviewing with admission counselors across the country and it is very likely that important information will be brought up in one interview and not another. This information (or lack of information) may be the driving force for one school to provide a larger financial aid package verses the other. So, when you get drastically differing financial aid offers, it doesn’t always mean that one school is less generous than the other. The “more generous” school may have just gotten something out of the interview process that the other did not.

So, if for some reason you receive a large financial aid package from one school vs. another, be prepared to send a copy of that award to the school that you are negotiating with. It will definitely help them when they are researching your situation and trying to see if any additional funding is available.

Hope this information helps…

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SEPP Distributions & The FAFSA


(Q.) My husband took a buyout several years ago, and we were advised to take SEPPs payments from the pension to help get us through his subsequent time of no employment. The trick was, we had to keep taking payments till he turned 59.5. These payments represent half our income, and make us look far more well off than we are. Now my husband is turning 59.5, and thanks to the economic downturn we’ve been told we MUST lower the amount we take out or it will all be gone when we’re actually ready to retire! Is there any way we can explain to a school that these payments artificially inflate our income—we actually earn only 50K a year between us—and that the situation is about to change? There’s no way we can stop the SEPPs payments, live on 50K, and still contribute to our daughter’s education.

helpareaderseries(A.) Financial Aid Offices do have latitude to utilize professional judgment to make adjustments to your FAFSA. They usually have a process/form that you need to complete for them to consider your request (and yes more information is better than none)

In the case of atypical extra income, you will want to talk to the financial aid director at the school your student is most interested in and see if they have a way to review special circumstances. Assuming they do, you can explain your inflated income situation and how it is about to have a drastic change in the current year (assuming you discontinue your SEPP withdrawals).

They may not be able to do a lot but they certainly can’t do anything if you don’t talk with them.

Hope this helps…

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When Should I Complete the FAFSA?


helpareaderseriesThis is a common question that I encounter on a regular basis. Based upon it’s continued recurrence, I believe that CheapScholar.org is a great forum to provide an appropriate response.

My quick answer is always “YESTERDAY”. While my response is meant to reflect the urgency of completing the FAFSA, there is a much more logical answer that I immediately follow-up with.

Families can start completing the FAFSA on January 1st. The most efficient manner to do this is electronically at FAFSA.ED.GOV. However, I am guessing that very few families actually submit a FAFSA on January 1st since most of the data requested is driven by your tax return. The long answer to when you should complete your FAFSA can be spelled out via a couple methods.

Method 1
If you are a student that is applying to multiple colleges, you will need to research the deadlines imposed by each institution and then pick the earliest one as your target date for completing the FAFSA. If you don’t have your taxes done, don’t worry, you can always estimate your income on the FAFSA and come back and update the figures later (after you have finished filing your taxes).

Method 2
Each state provides a deadline for filing the FAFSA in order to be eligible to receive their funds. A chart with these various deadlines is provided below.

You can utilize Method 1 or 2 when setting a target date to have your FAFSA completed. The important thing to remember is that many Universities and Colleges provide financial aid on a first come first serve basis. This is not to say that you won’t receive any funding for filing your FAFSA late in the game, you just may not receive as much as someone that processed their FAFSA by the appropriate deadlines.

Hope this information is helpful to our readers as you are traversing the world of financial aid.

Alabama Check with your financial aid administrator
Alaska April 15, 2010 @
American Samoa Check with your financial aid administrator*
Arizona Check with your financial aid administrator
Arkansas For Academic Challenge – June 1, 2010 @
For Workforce Grant – check with your financial aid administrator
For Higher Education Opportunity Grant – June 1, 2010 (fall term) @; November 1, 2010 (spring term) @
California For initial awards – March 2, 2010 +*
For additional community college awards – September 2, 2010 – date postmarked +*
Colorado Check with your financial aid administrator
Connecticut February 15, 2010 #*
Delaware April 15, 2010 @
District of Columbia June 30, 2010 @#*
Federated States of Micronesia Check with your financial aid administrator*
Florida May 15, 2010 – date processed
Georgia Check with your financial aid administrator
Guam Check with your financial aid administrator*
Hawaii Check with you financial aid administrator*
Idaho Opportunity Grant – March 1, 2010 @#*
Illinois As soon as possible after January 1, 2010. Awards made until funds are depleted.
Indiana March 10, 2010 &
Iowa July 1, 2010 @
Kansas April 1, 2010 @#*
Kentucky March 15, 2010 &#
Louisiana July 1, 2010 @
Maine May 1, 2010 @
Marshall Islands Check with your financial aid administrator*
Maryland March 1, 2010 &
Massachusetts May 1, 2010 @#
Michigan March 1, 2010 &
Minnesota 30 days after term starts @
Mississippi MTAG and MESG Grants – September 15, 2010 @#
HELP Scholarship – March 31, 2010 @#
Missouri April 1, 2010 @#
Montana March 1, 2010 #&
Nebraska Check with your financial aid administrator*
Nevada Check with your financial aid administrator*
New Hampshire May 1, 2010 @
New Jersey 2009-2010 Tuition Aid Grant recipients – June 1, 2010 @
All other applications – October 1, 2010, for fall and spring terms @;
March 1, 2011, for spring term only @
New Mexico Check with your financial aid administrator*
New York May 1, 2011 @+*
North Carolina Check with your finanacial aid administrator
North Dakota March 15, 2010 &
Northern Mariana Islands Check with your financial aid administrator*
Ohio October 1, 2010 @
Oklahoma April 15, 2010 @#
Oregon OSAC scholarship – March 1, 2010
Oregon Opportunity Grant – check with your financial aid adminstrator
Palau Check with your financial aid administrator*
Pennsylvania All 2009-2010 State Grant recipients and all non-2009-2010 State Grant recipients in degree programs – May 1, 2010 @*
All other applicants – August 1, 2010 @*
Puerto Rico Check with your financial aid administrator
Rhode Island March 1, 2010 &#
South Carolina Tuition Grants – June 30, 2010 @
SC Commission on Higher Education – no deadline
South Dakota Check with your financial aid administrator*
Tennessee For State Grant – February 15, 2010 @#
For State Lottery – September 1, 2010 @#
Texas Check with your financial aid administrator*
U.S. Virgin Islands Check with your financial aid administrator*
Utah Check with your financial aid administrator
Vermont Check with your financial aid administrator*
Virginia Check with your financial aid administrator*
Washington Check with your financial aid administrator
West Virginia April 15, 2010 @#*
Wisconsin Check with your financial aid administrator
Wyoming Check with your financial aid administrator*

* Additional form may be required. Contact your financial aid administrator or your state agency.
^ Applicants encouraged to obtain proof of mailing.
# For priority consideration, submit application by date specified.
@ Deadline by midnight, Central Daylight Time.
& Deadline by midnight, Central Standard Time.

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Need-Based vs. Merit-Based Awards


helpareaderseriesI recently received a question from a reader inquiring about the difference between need-based and merit-based awards.

First, let me say that I am excited to have our first question asked and answered on our website (and so soon). This is exactly what CheapScholar.org is here for. Now onto the answer..

Need-based awards and financial aid that are given to a student from a university or college are a result of the EFC (estimated financial contribution) figure that is created by your FAFSA results. The higher your EFC, the less need-based aid you are eligible for. The lower your EFC, the more need-based aid you qualify for. In theory, if your EFC changes from year to year, it is quite possible that the need-based aid portion of your financial aid package could also fluctuate. Fortunately, most institutions don’t recalculate your financial aid package for minor changes in your EFC.

Merit-based aid and awards are given to a student based upon their academic and extracurricular success leading up to college. Factors playing into this are GPA, SAT and ACT scores, club activities, and community service. The good news is that all merit-based aid is not impacted by your FAFSA results (EFC). For example, if your student is receiving $10,000 in merit-based aid and you win the lottery (lucky you!), you don’t have to worry about that part of the financial aid package going away. However, any need-based aid will probably disappear immediately (imagine a “poof” sound as you read that last statement.. like it disappears up in smoke). That is as good as sound effects get for web reading. 😉

The one thing that you want to keep in mind about merit-based aid is the requirements that the student must maintain to continue receiving those funds. Typically there is a GPA threshold that the student must uphold in order to continue to receive merit-based aid. Also, depending on the merit-based scholarship, some students may be required to participate in certain activities. For example, if the merit-based aid is related to musical ability, the student may be required to participate in a certain number of recitals or music oriented programs each year.

The most important thing to remember when your receive your financial aid package is that you want to quickly decipher which aid is need-based and which aid is merit-based and what are the requirements to maintain those funds for the duration of your student’s educational experience. Your financial aid office will be able to give you the specifics on each scholarship and award. All you have to do is ask…

I hope this information is helpful and that it appropriately answers our reader’s question. If you have a question that you would like to have answered on CheapScholar.org, please do not hesitate to drop me a line. I am always glad to help.

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