First it was Williams earlier this month; now Dartmouth has announced that it is pulling back from its “no loan” policy for students who qualify for financial aid. Anyone who has been reading about college investment losses should not be surprised by this development. A couple of weeks ago a study on college endowments reported that these investment portfolios in the aggregate lost about $95 billion in value in the 2009 fiscal year (June 2008 to June 2009), contracting 23% on average. Since colleges such as Williams and Dartmouth rely on endowment earnings to fund a major portion of their operating budgets, these investment losses have significant ramifications.
Back in late 2007 and early 2008 about 40 highly selective and well endowed colleges instituted no loan or limited loan policies for their student aid programs. This trend took hold after Senator Charles Grassley, Republican from Iowa, suggested that colleges and universities be held to the same standards as foundations that must spend 5% of the value of their investments annually in order to maintain tax exempt status. Yet as colleges grapple with structural deficits, even after a series of budget cuts, the practicality of these policies is now being revisited.
With Williams and Dartmouth taking the first steps, it is just a matter of time before others follow suit, as none of these colleges has been spared the economic pain. Both schools have stated that the reinstitution of loans in financial aid packages is a necessary move in order to preserve educational programs. Each has emphasized, however, that the return to loans will not affect students who demonstrate the most significant need. Dartmouth, for example, has stated that it expects this to impact those students whose families earn above $75,000, for whom loans will comprise $2,500 to $5,500 of the financial aid package per academic year. With income under $100,000, loans will not exceed $2,500.
So what does this mean for financial aid, in general, at colleges across the country? Without a crystal ball, I can only make some educated guesses. Neither Williams nor Dartmouth has backed away from fully meeting demonstrated need, and I expect that maintaining this policy will be a priority. We will just begin to see a higher percentage of loans in the packaging. The selective schools that currently have no loan policies generally offer need-based aid only (no merit). That of course, will not change. But what about other colleges that use merit aid to attract students and shape a class? Many of these colleges do not have the hefty endowments that prompted the no loan policies in the first place. They rely heavily on tuition to meet their budgets and fund aid.
Given the importance of filling seats, I predict that merit aid as an enrollment management tool will continue for many colleges. In fact, schools that survive by maintaining enrollment numbers may find merit aid even more important. Offering some tuition discount, past experience has shown, attracts students who still bring in tuition dollars. These are the ones that also raise GPA and standardized test score averages.
But back to need-based aid...will we continue to see less generous financial aid packages? Pure economics would suggest so. Don't be surprised to see other highly selective colleges dial back their no loan policies, especially now that two of their prestigious peers have already taken the plunge.
Wednesday, February 10, 2010
Wednesday, February 3, 2010
Obama's Plan for Financing Higher Education
Last summer the Obama administration introduced the Student Aid and Fiscal Responsibility Act, or SAFRA, which would end bank origination of federally guaranteed student loans. If passed by the Senate (it has already been approved by the House of Representatives), all federally guaranteed student loans will be funded directly through the federal government. The administration claims that eliminating the bank based program will save the government $87 billion over ten years, primarily by ending the subsidies that banks receive through the Federal Family Education Loan Program (FFEL). President Obama has pledged to use the expected savings towards other education initiatives.
So who will benefit from this savings windfall? The primary beneficiaries are likely to be borrowers repaying their federal guaranteed student loans and Pell Grant recipients. At the State of the Union address a little more than a week ago, Obama announced his commitment to expand the recently created Income-Based Repayment Program which I discussed in a blog posting last June. The existing repayment program went into effect July 1, 2009 and currently caps monthly loan payments for federal student loan borrowers at 15% of discretionary income (the difference between adjusted gross income and 150% of the federal poverty level). After 25 years, any outstanding loan balance would be fully extinguished. Those employed in public service would be relieved of their debt obligations after 10 years.
Now President Obama proposes to reduce the maximum federal loan payment amount to 10% of income, with a 20 year debt forgiveness term. Roughly 36% of student loan borrowers have loan payments that exceed 10% of their income, versus 16% at the current 15% of discretionary income cap. There is a real benefit here to our sons and daughters who borrow under the federal Stafford student loan program. For recent graduates starting out with modest incomes, a cap on debt service can provide some tangible cash outflow relief and may mean the difference between affordability and potential default.
The other major beneficiary of education finance reform is likely to be the Pell Grant program, which comes as no surprise. The Obama Administration has been upfront about its desire to improve funding to this higher education aid program which benefits those students with the greatest financial need. Key features of Obama’s budget plan for Pell Grants are an increase in the maximum annual amount to $5,710 from the current $5,350 maximum with increases pegged to the CPI, and a proposal to convert this to an entitlement program. Such a move would guarantee available funding for Pell Grants and would remove the program from the uncertainties of the Congressional budget annual appropriation process.
The last, but not necessarily least of the Obama administration proposals is the extension of the American Opportunity Tax Credit which, as a modification to the Hope Tax Credit, was initially approved for 2009 and 2010 only. The maximum $2,500 per tax year can be used during the first four years of post secondary education (100% of the first $2,000 and 25% of the next $2,000 for qualified tuition and expenses, including textbooks). The tax credit is available to middle income families, though begins to phase out between $80,000 to $90,000 for single taxpayers and $160,000 to $180,000 for married couples.
All in all, it appears that higher education fared better in the president’s 2011 fiscal budget than many other programs that have experienced cutbacks in funding. In fact, the proposals, if approved, will provide some relief to a wider range of income groups. By increasing Pell Grants, extending the American Opportunity Tax Credit and lowering the income caps for federal loan repayments, the Obama education plan casts a fairly wide net. It should help, even if modestly, not only those most in need, but will also begin to address the economic challenges faced by middle income families and recent college graduates who must make student loan payments at the same time that they try to get established in the workforce.
So who will benefit from this savings windfall? The primary beneficiaries are likely to be borrowers repaying their federal guaranteed student loans and Pell Grant recipients. At the State of the Union address a little more than a week ago, Obama announced his commitment to expand the recently created Income-Based Repayment Program which I discussed in a blog posting last June. The existing repayment program went into effect July 1, 2009 and currently caps monthly loan payments for federal student loan borrowers at 15% of discretionary income (the difference between adjusted gross income and 150% of the federal poverty level). After 25 years, any outstanding loan balance would be fully extinguished. Those employed in public service would be relieved of their debt obligations after 10 years.
Now President Obama proposes to reduce the maximum federal loan payment amount to 10% of income, with a 20 year debt forgiveness term. Roughly 36% of student loan borrowers have loan payments that exceed 10% of their income, versus 16% at the current 15% of discretionary income cap. There is a real benefit here to our sons and daughters who borrow under the federal Stafford student loan program. For recent graduates starting out with modest incomes, a cap on debt service can provide some tangible cash outflow relief and may mean the difference between affordability and potential default.
The other major beneficiary of education finance reform is likely to be the Pell Grant program, which comes as no surprise. The Obama Administration has been upfront about its desire to improve funding to this higher education aid program which benefits those students with the greatest financial need. Key features of Obama’s budget plan for Pell Grants are an increase in the maximum annual amount to $5,710 from the current $5,350 maximum with increases pegged to the CPI, and a proposal to convert this to an entitlement program. Such a move would guarantee available funding for Pell Grants and would remove the program from the uncertainties of the Congressional budget annual appropriation process.
The last, but not necessarily least of the Obama administration proposals is the extension of the American Opportunity Tax Credit which, as a modification to the Hope Tax Credit, was initially approved for 2009 and 2010 only. The maximum $2,500 per tax year can be used during the first four years of post secondary education (100% of the first $2,000 and 25% of the next $2,000 for qualified tuition and expenses, including textbooks). The tax credit is available to middle income families, though begins to phase out between $80,000 to $90,000 for single taxpayers and $160,000 to $180,000 for married couples.
All in all, it appears that higher education fared better in the president’s 2011 fiscal budget than many other programs that have experienced cutbacks in funding. In fact, the proposals, if approved, will provide some relief to a wider range of income groups. By increasing Pell Grants, extending the American Opportunity Tax Credit and lowering the income caps for federal loan repayments, the Obama education plan casts a fairly wide net. It should help, even if modestly, not only those most in need, but will also begin to address the economic challenges faced by middle income families and recent college graduates who must make student loan payments at the same time that they try to get established in the workforce.
Wednesday, January 27, 2010
Changing the Way Public Universities in New York Set Tuition
Did you know that the New York State Legislature controls tuition policy, setting rates and increases for the entire State University of New York system? This means that every four-year SUNY school charges the same tuition, whether it is a highly competitive and selective research institution or a small local college with more limited programs. However, that may all change if Governor Paterson has his way.
The Governor's budget proposal to the legislators last week included a measure that would allow SUNY colleges as well as the City University of New York, or CUNY, to finally determine their own tuition increases. Those advocating for maintaining the close oversight now held by Albany believe that centralization of decision making authority ensures consistent quality across the system. Critics, however, assert that lack of control over something as basic as tuition policy is detrimental to an institution’s ability to respond effectively to the changing needs of students and the community, and to efficiency deliver academic excellence.
My last blog posting discussed the Kiplinger report on the top 100 best values in colleges. Many of you will recall that two of the SUNYs, namely Binghamton and Geneseo, ranked in the top ten for both in-state and out-of-state residents. Would freedom to manage their own tuition rates move them out of the top tier for value? Proponents of Paterson’s plan would argue to the contrary. Competitive and highly sought programs in areas such as business, engineering and information technology are currently not priced according to their caliber or to the demand. Flexibility to increase tuition, while still remaining competitively priced, should only lead to an improvement in quality and value.
Currently the tuition at nearly all of SUNY’s 64 institutions is $5,070, a 14% increase over the prior year. Unfortunately, the SUNY colleges saw very little of that increase. The legislature has traditionally used such hikes as a tool to plug the State’s budget gap which was the case in 2009. Only 20% of the increase actually found its way to the SUNY system. Paterson’s proposed change would discontinue that practice, preventing the use of public college tuition as a state budget management tool. Rate hikes would also be capped as a function of the Higher Education Price Index, keeping tuition rise in check.
That said, it isn’t clear exactly how the proposed changes will impact New York State colleges, from a quality or cost standpoint. Some fear that the larger research institutions will price themselves in a way that makes them no longer accessible to middle income students, similar to what we have seen with many private institutions. The cap on tuition increases should moderate that somewhat. Furthermore, the trend toward diversification of financial resources (i.e., seeking funding beyond just the state) is likely to gain momentum, especially with the severity of the budget deficit issues facing Albany and in fact, all state governments. Greater freedom to manage tuition and raise private capital may be just what the SUNY colleges need to maintain and even possibly improve quality and value.
The Governor's budget proposal to the legislators last week included a measure that would allow SUNY colleges as well as the City University of New York, or CUNY, to finally determine their own tuition increases. Those advocating for maintaining the close oversight now held by Albany believe that centralization of decision making authority ensures consistent quality across the system. Critics, however, assert that lack of control over something as basic as tuition policy is detrimental to an institution’s ability to respond effectively to the changing needs of students and the community, and to efficiency deliver academic excellence.
My last blog posting discussed the Kiplinger report on the top 100 best values in colleges. Many of you will recall that two of the SUNYs, namely Binghamton and Geneseo, ranked in the top ten for both in-state and out-of-state residents. Would freedom to manage their own tuition rates move them out of the top tier for value? Proponents of Paterson’s plan would argue to the contrary. Competitive and highly sought programs in areas such as business, engineering and information technology are currently not priced according to their caliber or to the demand. Flexibility to increase tuition, while still remaining competitively priced, should only lead to an improvement in quality and value.
Currently the tuition at nearly all of SUNY’s 64 institutions is $5,070, a 14% increase over the prior year. Unfortunately, the SUNY colleges saw very little of that increase. The legislature has traditionally used such hikes as a tool to plug the State’s budget gap which was the case in 2009. Only 20% of the increase actually found its way to the SUNY system. Paterson’s proposed change would discontinue that practice, preventing the use of public college tuition as a state budget management tool. Rate hikes would also be capped as a function of the Higher Education Price Index, keeping tuition rise in check.
That said, it isn’t clear exactly how the proposed changes will impact New York State colleges, from a quality or cost standpoint. Some fear that the larger research institutions will price themselves in a way that makes them no longer accessible to middle income students, similar to what we have seen with many private institutions. The cap on tuition increases should moderate that somewhat. Furthermore, the trend toward diversification of financial resources (i.e., seeking funding beyond just the state) is likely to gain momentum, especially with the severity of the budget deficit issues facing Albany and in fact, all state governments. Greater freedom to manage tuition and raise private capital may be just what the SUNY colleges need to maintain and even possibly improve quality and value.
Monday, January 18, 2010
Best Values in Public Colleges
In my November 23, 2009 blog posting I wrote about finding value in public colleges and universities. As a follow up, I wanted to share the link to Kiplinger’s Personal Finance magazine which recently published its 100 Best Values in Public Colleges 2009-2010. You can find the full list at http://www.kiplinger.com/magazine/archives/best-values-in-public-colleges-200910.html.
The Kiplinger report also includes a one page guide to the methodology used in the rankings, explaining that both academic quality and affordability come into play. The first cut to make the list was academic quality, which for purposes of the listing includes SAT or ACT scores, admission and retention rates, student-faculty ratios, and four and six-year graduation rates. Academics, in fact, are weighted almost two-thirds more than affordability. The schools were then ranked based on cost and financial aid. The cost assessment takes into consideration total expenses for in-state students, and then looks at the average cost for both need and merit aid recipients after subtracting grants. A similar exercise was done to determine out-of-state rankings.
Why is the primary emphasis on academic quality rather than cost? Following the old adage, “you get what you pay for,” Kiplinger is rightfully concerned that state schools are following prudent strategies to maintain or even improve quality while keeping costs down. Are colleges successfully eliminating the fat in their budgets or rather, cutting into their core mission initiatives (reducing or eliminating academic programs that benefit students, for example)? That is an important factor in the quality assessment.
In my prior posting about state universities, I mentioned that many of these institutions, in an effort to increase revenues, are trying to grow their out-of-state enrollment for obvious reasons: non-resident students pay more. As a result, several public “Ivies” and other flagship state universities, unlike some of their private, highly selective counterparts, offer merit aid to entice top non-resident students (A topic, perhaps, for another posting is the criticism public universities have recently received as a result of these policies: see the January 14, 2010 Washington Post http://www.washingtonpost.com/wp-dyn/content/article/2010/01/13/AR2010011302643.html). Schools such as the University of Maryland and UNC-Chapel Hill seek to increase non-resident enrollment and are using merit aid to bring in out-of-state tuition and to shape a class (though North Carolina has an 18% cap on the percentage of students from outside the state).
If you are exploring public colleges for value, then certainly take a look at the Kiplinger list. However, I will offer my usual caveat about rankings. Determining “value” based on a selection of criteria that include such measures as standardized test scores will probably yield results that should be viewed with a critical, if not skeptical eye. The conclusions drawn are not scientific. As I have stated in the past, “value” will largely be influenced by how good a fit the school is for the students attending. Student engagement is often what contributes most to value.
The Kiplinger report also includes a one page guide to the methodology used in the rankings, explaining that both academic quality and affordability come into play. The first cut to make the list was academic quality, which for purposes of the listing includes SAT or ACT scores, admission and retention rates, student-faculty ratios, and four and six-year graduation rates. Academics, in fact, are weighted almost two-thirds more than affordability. The schools were then ranked based on cost and financial aid. The cost assessment takes into consideration total expenses for in-state students, and then looks at the average cost for both need and merit aid recipients after subtracting grants. A similar exercise was done to determine out-of-state rankings.
Why is the primary emphasis on academic quality rather than cost? Following the old adage, “you get what you pay for,” Kiplinger is rightfully concerned that state schools are following prudent strategies to maintain or even improve quality while keeping costs down. Are colleges successfully eliminating the fat in their budgets or rather, cutting into their core mission initiatives (reducing or eliminating academic programs that benefit students, for example)? That is an important factor in the quality assessment.
In my prior posting about state universities, I mentioned that many of these institutions, in an effort to increase revenues, are trying to grow their out-of-state enrollment for obvious reasons: non-resident students pay more. As a result, several public “Ivies” and other flagship state universities, unlike some of their private, highly selective counterparts, offer merit aid to entice top non-resident students (A topic, perhaps, for another posting is the criticism public universities have recently received as a result of these policies: see the January 14, 2010 Washington Post http://www.washingtonpost.com/wp-dyn/content/article/2010/01/13/AR2010011302643.html). Schools such as the University of Maryland and UNC-Chapel Hill seek to increase non-resident enrollment and are using merit aid to bring in out-of-state tuition and to shape a class (though North Carolina has an 18% cap on the percentage of students from outside the state).
If you are exploring public colleges for value, then certainly take a look at the Kiplinger list. However, I will offer my usual caveat about rankings. Determining “value” based on a selection of criteria that include such measures as standardized test scores will probably yield results that should be viewed with a critical, if not skeptical eye. The conclusions drawn are not scientific. As I have stated in the past, “value” will largely be influenced by how good a fit the school is for the students attending. Student engagement is often what contributes most to value.
Thursday, January 7, 2010
Planning for College - Understand the Cost First
College is expensive! That comes as a shock to all of you, right? Of course not. Then why do so many families appear to first experience the college cost sticker shock after their child has been accepted? I’ve given some thought to this in recent days, having received calls from parents wondering if I can find them money for college after their children have been accepted.
Why are so many of us surprised to learn just how much college will cost us? Call me a cynic, but I have always been bothered by the websites, articles and other media forms that continually tell students and families that college is more affordable than we think. After all, schools give grants, the government provides grants and loans, so in the final analysis your net cost should be far less than the sticker price. There is definitely some truth to these assertions, but the problem is that the gap between the cost of attendance and what a family thinks it can reasonably afford to pay is often far greater that the financial assistance available to most middle income families. Expanded tax credits, additional federal grant money approved by the Obama administration…these are a start in helping to make college affordable. However, many families do not qualify to take advantage of these, and even for those that do, the actual benefits will likely make a small dent in the cost of a private four-year college education.
Here are the facts:
- The federal government is the single largest source of financial aid. However, to qualify for federal government grant money, your income must be less than $50,000 a year.
- Loans are available through the federal Stafford loan program even for those who don’t qualify for need-based aid. Yet the maximum amount for a college freshman is $5,500 ($6,500 for a sophomore, and $7,500 for juniors and seniors). If the school isn’t giving you merit aid, you may still need to close a $45,000 gap after borrowing up to the maximum limit. And loans, of course, must be paid back. Unsubsidized Stafford loans (non-need based) require that you pay interest while in school or capitalize it, which means that your child will graduate with a larger amount than initially borrowed.
- Education tax credits will reduce your taxes due, but not by much in the grand scheme of financing a college education. The American Opportunity Tax Credit, which the federal government recently approved to replace the Hope Tax Credit for 2009 and 2010, allows families to deduct up to $2,500 from their taxes due if they have education expenses during the tax year. Filers will receive a credit of 100% for the first $2,000 they pay in eligible college costs (tuition, fees and books paid during the tax year), and 25% of the next $1,000. The income cap, to fully take advantage of these credits, was also raised to $90,000 for single filers and $180,000 for couples that file jointly.
- Yes, the net cost at each college is less than the actual price quoted, but don’t assume that this means you won’t be paying the full amount. Net cost takes into consideration those who get need-based aid and the few who qualify for merit scholarships. At many schools, especially the highly selective ones, most students pay the full freight if they are not eligible for financial aid.
- There are numerous scholarships available to students willing to take the time to research them and to apply, which often means additional essays. However, hitting the jackpot and winning a five figure scholarship requires as much luck as work. I would never discourage students from seeking scholarships. I just want families to be aware of the effort and time involved, as well as the odds of winning one and the timing. Don’t wait until January of senior year when most of the more coveted ones have already been awarded.
My intention is not to dampen your post holiday spirit, but rather to re-visit a point I have made in the past. Do your homework and know how much you can afford to pay. Have the family conversation about affordability before the college search begins. That means looking at income, savings, possible aid, and reasonable borrowing, which of course must be repaid with interest.
This does not mean that students shouldn’t apply to expensive private colleges which may offer more robust financial aid packages. However, getting merit money generally means that the student has something special that the college wants, whether it is academic, artistic, athletic talent or diversity. If affordability is an issue, make sure your son or daughter includes a few financial safeties on the college list. Take the time to find out the types of students a college seeks and what special talents your child would add to a class. That is still the best way to find money for college.
Why are so many of us surprised to learn just how much college will cost us? Call me a cynic, but I have always been bothered by the websites, articles and other media forms that continually tell students and families that college is more affordable than we think. After all, schools give grants, the government provides grants and loans, so in the final analysis your net cost should be far less than the sticker price. There is definitely some truth to these assertions, but the problem is that the gap between the cost of attendance and what a family thinks it can reasonably afford to pay is often far greater that the financial assistance available to most middle income families. Expanded tax credits, additional federal grant money approved by the Obama administration…these are a start in helping to make college affordable. However, many families do not qualify to take advantage of these, and even for those that do, the actual benefits will likely make a small dent in the cost of a private four-year college education.
Here are the facts:
- The federal government is the single largest source of financial aid. However, to qualify for federal government grant money, your income must be less than $50,000 a year.
- Loans are available through the federal Stafford loan program even for those who don’t qualify for need-based aid. Yet the maximum amount for a college freshman is $5,500 ($6,500 for a sophomore, and $7,500 for juniors and seniors). If the school isn’t giving you merit aid, you may still need to close a $45,000 gap after borrowing up to the maximum limit. And loans, of course, must be paid back. Unsubsidized Stafford loans (non-need based) require that you pay interest while in school or capitalize it, which means that your child will graduate with a larger amount than initially borrowed.
- Education tax credits will reduce your taxes due, but not by much in the grand scheme of financing a college education. The American Opportunity Tax Credit, which the federal government recently approved to replace the Hope Tax Credit for 2009 and 2010, allows families to deduct up to $2,500 from their taxes due if they have education expenses during the tax year. Filers will receive a credit of 100% for the first $2,000 they pay in eligible college costs (tuition, fees and books paid during the tax year), and 25% of the next $1,000. The income cap, to fully take advantage of these credits, was also raised to $90,000 for single filers and $180,000 for couples that file jointly.
- Yes, the net cost at each college is less than the actual price quoted, but don’t assume that this means you won’t be paying the full amount. Net cost takes into consideration those who get need-based aid and the few who qualify for merit scholarships. At many schools, especially the highly selective ones, most students pay the full freight if they are not eligible for financial aid.
- There are numerous scholarships available to students willing to take the time to research them and to apply, which often means additional essays. However, hitting the jackpot and winning a five figure scholarship requires as much luck as work. I would never discourage students from seeking scholarships. I just want families to be aware of the effort and time involved, as well as the odds of winning one and the timing. Don’t wait until January of senior year when most of the more coveted ones have already been awarded.
My intention is not to dampen your post holiday spirit, but rather to re-visit a point I have made in the past. Do your homework and know how much you can afford to pay. Have the family conversation about affordability before the college search begins. That means looking at income, savings, possible aid, and reasonable borrowing, which of course must be repaid with interest.
This does not mean that students shouldn’t apply to expensive private colleges which may offer more robust financial aid packages. However, getting merit money generally means that the student has something special that the college wants, whether it is academic, artistic, athletic talent or diversity. If affordability is an issue, make sure your son or daughter includes a few financial safeties on the college list. Take the time to find out the types of students a college seeks and what special talents your child would add to a class. That is still the best way to find money for college.
Monday, December 21, 2009
CSS/PROFILE - The Other Financial Aid Form
In earlier postings on the financial aid application process I have mentioned that schools may require applicants to submit different or even more than one form, especially if the colleges are allocating both federal money and their own institutional funds. Virtually all colleges and universities use the FAFSA which my faithful readers know is required for all federal aid. However, there are roughly 300 private institutions that also have families complete a form called the CSS/PROFILE which they use to award their private grant money and scholarships. The PROFILE, as it is known in shorthand, is administered by the College Scholarship Service (CSS), the financial aid division of the College Board, and it is only accessible through the College Board website. One can find the form most directly by going to http://www.profileonline.collegeboard.com/. The College Board website is also the place to go to find the list of the colleges and universities that require the PROFILE. I would still advise families to visit the websites of each college to which your child is applying to check the form requirements and deadlines for submission.
In many respects, the FAFSA and PROFILE take similar approaches to the way they determine the Expected Family Contribution. Like the FAFSA, the PROFILE looks at both the student and parents’ income and assets. The good news is that much of the information that you gather to complete the FAFSA will also be necessary for the PROFILE. However, there are a few major differences in the type of information required and in the methodologies, both of which may have a material effect on the outcome.
Some of the key differences are:
- The FAFSA, which is referred to as the Federal Methodology or FM, asks the same questions of all applicants, regardless of the college. The PROFILE or Institutional Methodology (IM) questions may vary from school to school, as colleges have some discretion to tailor the form to their specific institutions. As long as college financial aid officers remain within their institutional policies, they have the flexibility to exercise their “Professional Judgment” as they see fit.
- In general, the PROFILE requires more information than the FAFSA, particularly in terms of assets and expenses. For example, the IM considers the equity in the family’s primary residence (though a handful of colleges have elected to exclude this from the calculation, Princeton among them).
- The FAFSA asks for income information for only the tax year prior to the year of enrollment (e.g., the 2009 tax return information for the 2010-2011 academic school year); the PROFILE requires 3 years of income disclosed: the two prior to the year of enrollment and a projection for the coming year.
- The PROFILE permits an allowance for secondary and elementary school tuition of siblings and also one for medical expenses. The FAFSA does not.
- With the Institutional Methodology students, regardless of income, are expected to contribute to the cost of their education, though it may be a nominal amount. The FM makes no such requirement.
- For students with divorced parents, the FAFSA never requires financial information of the non-custodial parent (the one with whom the student resides less than 50% of the time). However, if the custodial parent has remarried, the stepparent’s income is considered. Not so for the PROFILE: many schools that use the IM require financial information of both the custodial and the non-custodial parents. Check with the individual colleges to find out their requirements.
- The FAFSA, as its name implies (Free Application for Federal Student Aid) is free while the PROFILE costs $5 to process plus $18 for each school.
- Lastly, the FAFSA does not become available online until January 1. The PROFILE is accessible in the fall of the year prior to matriculation. In other words, it is available NOW!
One last thought: Most colleges use these financial aid forms for awarding need based aid, not merit aid. There are exceptions, however. The best thing to do is to check with each school’s financial aid office to find out what is required to be eligible for both need and merit aid. As I have previously noted, the FAFSA must be completed for any students who wish to borrow under the Stafford loan program, regardless of need. And truly one last thing: financial aid deadlines at many schools follow close on the heels of college application due dates, so please look carefully at websites to make sure that these important deadlines are met.
In many respects, the FAFSA and PROFILE take similar approaches to the way they determine the Expected Family Contribution. Like the FAFSA, the PROFILE looks at both the student and parents’ income and assets. The good news is that much of the information that you gather to complete the FAFSA will also be necessary for the PROFILE. However, there are a few major differences in the type of information required and in the methodologies, both of which may have a material effect on the outcome.
Some of the key differences are:
- The FAFSA, which is referred to as the Federal Methodology or FM, asks the same questions of all applicants, regardless of the college. The PROFILE or Institutional Methodology (IM) questions may vary from school to school, as colleges have some discretion to tailor the form to their specific institutions. As long as college financial aid officers remain within their institutional policies, they have the flexibility to exercise their “Professional Judgment” as they see fit.
- In general, the PROFILE requires more information than the FAFSA, particularly in terms of assets and expenses. For example, the IM considers the equity in the family’s primary residence (though a handful of colleges have elected to exclude this from the calculation, Princeton among them).
- The FAFSA asks for income information for only the tax year prior to the year of enrollment (e.g., the 2009 tax return information for the 2010-2011 academic school year); the PROFILE requires 3 years of income disclosed: the two prior to the year of enrollment and a projection for the coming year.
- The PROFILE permits an allowance for secondary and elementary school tuition of siblings and also one for medical expenses. The FAFSA does not.
- With the Institutional Methodology students, regardless of income, are expected to contribute to the cost of their education, though it may be a nominal amount. The FM makes no such requirement.
- For students with divorced parents, the FAFSA never requires financial information of the non-custodial parent (the one with whom the student resides less than 50% of the time). However, if the custodial parent has remarried, the stepparent’s income is considered. Not so for the PROFILE: many schools that use the IM require financial information of both the custodial and the non-custodial parents. Check with the individual colleges to find out their requirements.
- The FAFSA, as its name implies (Free Application for Federal Student Aid) is free while the PROFILE costs $5 to process plus $18 for each school.
- Lastly, the FAFSA does not become available online until January 1. The PROFILE is accessible in the fall of the year prior to matriculation. In other words, it is available NOW!
One last thought: Most colleges use these financial aid forms for awarding need based aid, not merit aid. There are exceptions, however. The best thing to do is to check with each school’s financial aid office to find out what is required to be eligible for both need and merit aid. As I have previously noted, the FAFSA must be completed for any students who wish to borrow under the Stafford loan program, regardless of need. And truly one last thing: financial aid deadlines at many schools follow close on the heels of college application due dates, so please look carefully at websites to make sure that these important deadlines are met.
Tuesday, December 15, 2009
Financial Aid Forms - What You Should Be Doing Now
It is mid-December and high school seniors are busy putting the final touches on college applications and essays. However, it may not yet be time to kick back and wait. Another deadline is lurking just around the corner and that is the due date for the submission of financial aid forms. The FAFSA, or Free Application for Federal Student Aid, which is the financial aid form used by all institutions to determine eligibility for federal funds, will become available online January 1 for the 2010-2011 academic year (go to http://www.fafsa.gov/ ). Many colleges have set financial aid deadlines in February and March, and a few are even earlier! So planning ahead is important in order to get your forms filed in time.
Even if you believe you will not qualify for financial aid, it is a good idea to fill out the FAFSA. Any student hoping to borrow under the unsubsidized Stafford student loan program is required to submit the FAFSA. For these federally guaranteed loans interest accrues while the student is in school and financial need is not a factor for eligiblity.
So what should you be doing now, prior to actually filling out the financial aid form? Here are a few tips to help you get organized to make the filing process as simple as possible.
1) While people gripe about the burden of completing the FAFSA, gathering the necessary documents may in fact be the most tedious part of the process. Required documents include the student’s driver’s license (if any) and social security number, his or her 2009 W-2 forms and other records of money earned, the student’s 2009 federal tax return, the parents’ 2009 federal tax return (for dependent students), any untaxed income records (this includes child support), and current bank statements as well as investment and business or farm records.
2) Keep copies of these documents together with your completed financial aid forms; should your application be selected for verification (schools are required to verify, at a minimum, 1 in 3 financial aid applications), you will be asked to submit these to the college.
3) Obtain a FAFSA pin number by going to http://www.pin.ed.gov/. The student and one parent will each need to establish a pin number which is both your electronic signature and the number you will need to access your online FAFSA form.
4) Check the financial aid section of each college’s website to find out the forms required and the deadlines for submission. Keep in mind that the earlier you submit, the sooner you get into the financial aid queue.
5) You may find yourself working to meet early financial aid deadlines before you are able to file your 2009 federal tax returns. In this case you will have to estimate your adjusted gross income, federal taxes and non-taxable income in order to get your financial aid forms submitted in time. Many people estimate these numbers based on the prior year tax return, and then update the form with more accurate information once the return is filed. If you are certain that you will not qualify for financial aid, but are completing the FAFSA so that your child is eligible for Stafford student loans, you may hold off submitting it until after you have actually filed your 2009 tax return.
Completing the FAFSA is really not as painful a process as some would have you believe. Not only has the 2010-2011 form been simplified, with as many as 1/3rd fewer questions, but the directions are generally clear and simple. Families are directed to the relevant lines on their tax returns for many of the required answers, taking away much of the guesswork. Remember that need-based financial aid is awarded annually. This means that all necessary financial aid forms must be completed each year that the student is in school.
Stay tuned for upcoming information on the CSS/Profile, the financial aid form that many private colleges use for allocation of their institutional funds.
Even if you believe you will not qualify for financial aid, it is a good idea to fill out the FAFSA. Any student hoping to borrow under the unsubsidized Stafford student loan program is required to submit the FAFSA. For these federally guaranteed loans interest accrues while the student is in school and financial need is not a factor for eligiblity.
So what should you be doing now, prior to actually filling out the financial aid form? Here are a few tips to help you get organized to make the filing process as simple as possible.
1) While people gripe about the burden of completing the FAFSA, gathering the necessary documents may in fact be the most tedious part of the process. Required documents include the student’s driver’s license (if any) and social security number, his or her 2009 W-2 forms and other records of money earned, the student’s 2009 federal tax return, the parents’ 2009 federal tax return (for dependent students), any untaxed income records (this includes child support), and current bank statements as well as investment and business or farm records.
2) Keep copies of these documents together with your completed financial aid forms; should your application be selected for verification (schools are required to verify, at a minimum, 1 in 3 financial aid applications), you will be asked to submit these to the college.
3) Obtain a FAFSA pin number by going to http://www.pin.ed.gov/. The student and one parent will each need to establish a pin number which is both your electronic signature and the number you will need to access your online FAFSA form.
4) Check the financial aid section of each college’s website to find out the forms required and the deadlines for submission. Keep in mind that the earlier you submit, the sooner you get into the financial aid queue.
5) You may find yourself working to meet early financial aid deadlines before you are able to file your 2009 federal tax returns. In this case you will have to estimate your adjusted gross income, federal taxes and non-taxable income in order to get your financial aid forms submitted in time. Many people estimate these numbers based on the prior year tax return, and then update the form with more accurate information once the return is filed. If you are certain that you will not qualify for financial aid, but are completing the FAFSA so that your child is eligible for Stafford student loans, you may hold off submitting it until after you have actually filed your 2009 tax return.
Completing the FAFSA is really not as painful a process as some would have you believe. Not only has the 2010-2011 form been simplified, with as many as 1/3rd fewer questions, but the directions are generally clear and simple. Families are directed to the relevant lines on their tax returns for many of the required answers, taking away much of the guesswork. Remember that need-based financial aid is awarded annually. This means that all necessary financial aid forms must be completed each year that the student is in school.
Stay tuned for upcoming information on the CSS/Profile, the financial aid form that many private colleges use for allocation of their institutional funds.
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