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How Much College Debt Is Too Much?Guest Contributor
Counselors at public, private and charter high schools have a lot on their plates.
They assist students in finding and getting accepted at a right-fit college, and help parents (especially low-income ones) navigate the Free Application for Federal Student Aid (FAFSA) process to make sure students optimize all of the federal and state aid available to them.
It’s no wonder there’s little time left to help middle-income families figure out how to afford college.
Many families have little or no knowledge of the many income, asset, tax and borrowing strategies they can use to reduce the cost of college. They have no idea how to leverage the financial aid system to their benefit. And we are not talking about knowledge that can help them save a few hundred dollars per year. We are talking about tips that can save them several thousand dollars per year, depending on a family’s circumstances and financial profile.
For middle-income families, that can have a huge impact both on which college a student chooses and whether they and their family are able to get through college without being saddled with debt.
There are countless stories of middle-class families hurting from bad financial advice or lack of any advice at all. Take the case of one family earning $85,000 per year with four kids to send to college. Almost 90 percent of their savings over the last 18 years had been allocated to a small apartment building they owned. Their hard work and sacrifice made it a good investment for them. By the time they filled out the FAFSA, they had over $300,000 of equity in that building.
At a workshop they attended, they were correctly told to list the equity in their apartment building on their FAFSA as a personal investment. This investment, however, raised their Expected Family Contribution (EFC) by over $15,000 which, in turn, required them to take out a Parent PLUS Loan to pay for college.
What really cost this family is that they had to report this asset every year for all four kids. That likely added over a quarter of a million dollars to the cost of educating their children. What’s so frustrating about this example is that no one told the family at the FAFSA workshop they attended one key point — that they could have taken legal steps to convert that personal asset into a business asset with no requirement to list it on the FAFSA.
There are dozens of other examples that can cause the cost of college to skyrocket. The simple mistake of having college savings in the student’s name instead of the parents’ name, for example, can mean thousands of dollars in additional costs.
Many high schools and colleges consider academics and finances to be two separate spheres, when in fact they are closely linked.
In “Why Admissions and Financial-Aid Professionals Should Work Together,” Chris George, then assistant vice chancellor for enrollment and director of financial aid at the University of Denver, argued that admissions and financial aid should not be separate and isolated parts of the application and admissions decision, with the offices having little knowledge of what was going on with the other side.
Instead, he encouraged his peers on both sides of the divide to educate themselves in the interest of doing a better job for their college families. George now serves as dean of admissions and financial aid at St. Olaf College in Minnesota.
For high schools, bridging the academic-financial divide could mean adding financial aid education in curriculums for those who will be helping families pay for college, or seeking partnerships with individuals and organizations that can fill this important knowledge gap.
Ignorance about federal loan strategies is common. Many people don't know the basics. Try asking parents or academic counselors about the Parent PLUS Loan, for example. Most know only that it carries a high interest rate and therefore they should avoid it. Few are aware of the steps they can take to ease the burden of sizable Parent PLUS Loan balances.
Part of the problem is that the federal government (which administers these loans) changed the rules for the Parent PLUS Loan Program in 2011 and then, in 2014, changed them again back to where they were before 2011. Because of that, parents who research the topic often land on erroneous or out-of-date information.
Similarly, when parents research repayment programs, they may find articles pointing out that there are no income-based payback programs or forgiveness programs for Parent PLUS Loans. Strictly speaking, that’s true. But if parents take the extra step of moving their Parent PLUS Loan balance into the Government Consolidation Program, they can take advantage of loan forgiveness programs. Unfortunately, that bit of information is missing from most high school discussions of the FAFSA.
Finally, there are unscrupulous private lenders that are using this confusion for their own benefit. They spotlight their lower interest rates, side-stepping the fact that a family’s special circumstances could make the Parent PLUS Loan a more favorable option.
All this combined with the complexity of our government loan programs speaks to the need to do more to help parents with this process. If we don't fill the financial aid knowledge gap, there will continue to be two prices for college for our middle-income families — one for the informed and another, much higher one, for the uninformed.
College is expensive, but families who do their homework can find ways to keep it from busting their budgets.
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