Plan For College

Thursday, May 29, 2014

Financial Aid: True or False? (Part II)

This is part II of the Financial Aid True or False series. You can view part I here.

4. Colleges Give Less Financial Aid Than Needed In Order To Turn Away Students: True or False?

Many colleges will offer some students a financial aid package that is less than the student's financial need. This is called Gapping. Gapping occurs when the college doesn’t have enough funds to meet the student’s full financial need above what they qualify for through the federal and state financial aid system. Therefore, some students will necessarily be left with "Unmet Need" at some schools. Gapping or Unmet Need normally occurs when the student is applying to state-supported colleges or universities. In a few rare situations a private college could gap a student that they are not interested in.

The answer is true. To avoid gapping, students should apply to colleges that guarantee they will meet 100% of the financial need of all students that are accepted for admission.

5. High Income Families Are Out Of Luck With Financial Aid: True or False?

Many middle and high income families are under the assumption that they could qualify for free money from the federal and state governments. However, in the many situations this is false. The largest program that provides free money from the federal government is the Pell grant program. However, in a few unique situations high income earning families could qualify for the Pell grant. Most families think the Pell grant is based on the financial need of the family, when in reality, the Pell grant has nothing to do with a family’s financial need. Pell grant money is given out based on the family’s expected contribution, better known as your EFC.

The biggest driving factor of calculating your EFC is your adjusted gross income. If you make a substantial amount of money, but have a large amount of business or other losses it could drop your adjusted gross income to a level that would cause your EFC to fall into the guidelines of qualifying for the Pell grant. We have seen families that made six figured incomes and due to their business or other losses caused their adjusted gross income to be very low, therefore qualifying them for the Pell grant.

Many middle and high income families could qualify for educational tax credits directly from the Internal Revenue Service, as well. The best known is called the American Opportunity tax credit. The maximum amount of tax credit that could be received is $2500 per year (over four-years) for families earning up to $180,000 and single parents earning under $90,000. In addition, the Unsubsidized Direct Loan is available to students from families at all income levels.

6. Students Must Pay Back 100% Of All Principal and Interest from The Federal Student Loan Program: True or False?

According to the College Board, there is approximately $1 trillion in student loan debt that has been amassed over the last several years. In the past, many families were able to pay for a college education with little or no debt at all. However, borrowing for college is now the norm. In the past, all students had college debt repayment schedules set at a 10-year payback. However, today there are several options in which the student can pay back their student loans.

There are income-driven payback programs which are tied to the borrower’s discretionary income. Under one program, if a student works 10 years for public service their loan could be forgiven after 10 years even though they have a balance remaining.

If the student works in the private sector, they can have their loan balance forgiven after 20 or 25 years. Many college students that graduate with thousands of dollars in student loan debt are entering the workforce with a chain around their neck. What most parents and students do not understand, borrowing for college is NOT necessary. With a little time and effort most students can graduate from college with zero debt.

Therefore, the answer is false.  Student loans can be forgiven way down the road if you meet certain qualifications.

If you want to understand and learn how to pay for a college education and graduate with zero debt, get in touch with us today.


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