Researching student loans, wow my head is spinning. Any info?

[msmayor]

You are not kidding, I think the EFC is positively nutty and would only apply to a person with a good job living in a hut with an outhouse in a temperate climate that does not require utilities using public transportation & candles and who eats pasta and PB & J. It does not at all take into account any version of a normal middle class existence - so its designed for the survivalists ROTFL, ain't that a kick in the pants of irony- guess whose laughing now. I have yet to find a single person who saw their number and said, "OH yeah, I got that right on the nose." Its weird, just like the poor kid who worked fingers to the bone to get a little extra on top of financial need provisions and who was denied funding I feel like my husband and I made tons of sacrifices to get ahead for the sake of bettering our lives only to see it swallowed up by trying to help our kids provide for themselves in the ever more competitive future. Its a quicksand existence and I am beyond frustrated that it is taking so much effort to see this through

I will not diminish the fact that your child has worked hard...its admirable and wonderful that she has accomplished so much. But the cold hard truth is that an expensive college education isn't a right, and isn't something a kid 'deserves' because they work hard. My husband works hard...sometimes 70-80 hours a week...but that doesn't mean he deserves a BMW to drive to work.

I'm sure you did make sacrifices...but you also made choices. I see the double-digit number of trips to WDW in your signature. That's a lot of money spent that had the potential to be college savings. I'm not saying you should have saved it...because quite honestly my family took our own share of WDW trips and other expensive vacations over the years. Those were our choices...to spend that money instead of save it. Just like saving for retirement was our choice over saving more for college. That choice had consequences which meant more in loans than originally expected.

Its about finding a school you can reasonably afford (especially if it means loans) and learning that its not necessarily the college name on the degree that will determine your success. Your daughter has already demonstrated that she will work hard to succeed. If she carries that ethic forward it won't matter what school her degree comes from. The achievement she demonstrates in pursuit of that degree will speak volumes.

 

[tzolkin]

It assumes that you started setting aside money for your kids to go to college when they were born, and set aside a fairly substantial part of your income towards that knowing it would be a huge expense.

Then it further assumes you'll take advantage of a school with reasonable tuition.

What the government doesn't want is to subsidize families who have always driven new cars, taken expensive vacations, and generally spent their kid's college education money on luxuries - and then wonder why someone else isn't paying for their kids educations to go to NYU (which really is ridiculous in terms of its cost - the tuition is bad - but room and board in NYC sends it over the top - its on my daughters list).

While I would like to agree (since that's what people should be doing), I think it's more complicated than that and therefore doesn't always wind up with a higher EFC for the family that could afford it.

Here's an example:
Family A-- Income last year $80,000 (new job and large sign-on bonuses), but all previous years their income was $30,000
Family B-- Income last year $80,000 (one parent retired), but all previous years had been well over $150,000
Both families would have the same EFC, but one truly had a much greater opportunity to save.

The Parents Asset Protection Allowance is also based on age.
So, for example, last year the allowance for 35yo was $16,700 and for 55yo was $36,300. That means if both parents had the exact same amount of money in savings, the younger parents would have to pay at least $1100 more each year for their child's education. Sure, one could argue that the younger parents will have more time to save later, but the logic still completely goes against the idea that the FAFSA is assuming parents have been saving. If the EFC is based on the assumption that the parents have been saving for their child's education, wouldn't the older parent have had the opportunity to save longer and could therefore afford more?

As for the second bolded part, this seems to be exactly what is happening. Since your EFC increases by 5.64% of whatever you have saved, then those who have made sacrifices to save over the years will have to pay significantly more than those who blew through all their money.
Ex. Two families with parents the same age, same income but one family has saved $100,000 while other family lived beyond their means. The frugal family's EFC would be $4698 more per year, so would wind up spending an extra $18,792 for their child's education over 4 years.

 

[Mrs. Ciz]

I would understand such a hedge if it was set in stone for 4 years, but fafsa is submitted each year, plus an option to appeal mid year for a job loss or other significant financial change in circumstances. Anecdotally, I got a student loan after the crash of 08 with a parent consignor. Also, your education account shouldn't be subject to market fluctuations once you get close to using it. If you already have four years saved up and cannot ride out a crash, change your asset allocation in accordance with your risk tolerance asap.

All good points! Plus there are other ways to make things work in the event of a catastrophic event. My hairdresser lost her husband a couple of years before her DD went to college. She had a 529 prepaid tuition account. She chose a small local private college because it offered a great aid package. With the 529 money, the financial aid, and her DD living at home with a 1 meal a day meal plan for school days, they are able to make it work. The mom also rents out a room in her house for $500 a month to a couple kids (friends of her DD). It might not be the conventional way to pay for college, but she is able to afford it this way!

 

[Mrs. Ciz]

As for the second bolded part, this seems to be exactly what is happening. Since your EFC increases by 5.64% of whatever you have saved, then those who have made sacrifices to save over the years will have to pay significantly more than those who blew through all their money.
Ex. Two families with parents the same age, same income but one family has saved $100,000 while other family lived beyond their means. The frugal family's EFC would be $4698 more per year, so would wind up spending an extra $18,792 for their child's education over 4 years.

But if the family who lived beyond their means had to borrow most of the money to make their EFC contribution, wouldn't they come out worse than the frugal family due to all the interest on the loans? I am so not a math person, so I won't even attempt calculations to check my suspicion. Is there a sweet spot, like a break even spot between saving and finagling the lowest EFC, lowest loan combo?

 

[limpy]

But if the family who lived beyond their means had to borrow most of the money to make their EFC contribution, wouldn't they come out worse than the frugal family due to all the interest on the loans? I am so not a math person, so I won't even attempt calculations to check my suspicion. Is there a sweet spot, like a break even spot between saving and finagling the lowest EFC, lowest loan combo?

Agreed, I don't have time to do the math, I'm sure it's somewhere in the internets, but it stands to reason that the frugal family will always come out ahead - more saved, less loans, and not over extending themselves during college, which the non-frugal family will likely have to do.

 

[DisneyMandC]

Here's an example:
Family A-- Income last year $80,000 (new job and large sign-on bonuses), but all previous years their income was $30,000
Family B-- Income last year $80,000 (one parent retired), but all previous years had been well over $150,000
Both families would have the same EFC, but one truly had a much greater opportunity to save.

This is basically what happened to me. My parents divorced my senior year of high school and sold their business. So their income looked huuuuuge for that year, but in reality all of the money went to paying off business debts and taxes. There was no point in me even filling out a fafsa because we knew I'd get nothing.

 

[tzolkin]

But if the family who lived beyond their means had to borrow most of the money to make their EFC contribution, wouldn't they come out worse than the frugal family due to all the interest on the loans? I am so not a math person, so I won't even attempt calculations to check my suspicion. Is there a sweet spot, like a break even spot between saving and finagling the lowest EFC, lowest loan combo?

Agreed, I don't have time to do the math, I'm sure it's somewhere in the internets, but it stands to reason that the frugal family will always come out ahead - more saved, less loans, and not over extending themselves during college, which the non-frugal family will likely have to do.

You're both correct. I wasn't trying to imply that the frugal family would not come out ahead in the long run.

I was responding to another poster's comment that the government doesn't want to subsidize families who have spent foolishly rather than saving. Since EFC is partly based on how much you have saved (parents are expected to contribute 5.64% of their savings-- and students an even higher percentage), the non-savers are in fact being subsidized because their children will qualify for more financial aid (since they will have a lower EFC than the savers).

 

[crisi]

While I would like to agree (since that's what people should be doing), I think it's more complicated than that and therefore doesn't always wind up with a higher EFC for the family that could afford it.

Yep, the system could be set up to be much more fair - and with IRS data mining, it should be easy enough to do. Large capital gains from selling a business shouldn't count as a single year of income. Getting a good paying job when you've been un- or under-employed for five years shouldn't drive your EFC through the roof. The formula could certainly be tweaked to account for income each year over the course of your kids' lives, family size, and cost of living adjustments. No model is going to be completely fair - but certainly one could be created that was more fair.

But my own point was that the government isn't expecting you to pony up $40k a year in cash all at once and live in a tiny house (http://www.tumbleweedhouses.com/) while your kids go to college, drinking the milk from your own free range goats and raising your own poultry, they are making the assumption that you've been socking it away. And what seems to happen to many people (cause we go through this discussion every year here) is that people have saved some money for college - but very little - and then are shocked when grant money isn't there and their package is a few subsidized loans and "go see your banker."

 

[tzolkin]

Yep, the system could be set up to be much more fair - and with IRS data mining, it should be easy enough to do. Large capital gains from selling a business shouldn't count as a single year of income. Getting a good paying job when you've been un- or under-employed for five years shouldn't drive your EFC through the roof. The formula could certainly be tweaked to account for income each year over the course of your kids' lives, family size, and cost of living adjustments. No model is going to be completely fair - but certainly one could be created that was more fair.

But my own point was that the government isn't expecting you to pony up $40k a year in cash all at once and live in a tiny house (http://www.tumbleweedhouses.com/) while your kids go to college, drinking the milk from your own free range goats and raising your own poultry, they are making the assumption that you've been socking it away. And what seems to happen to many people (cause we go through this discussion every year here) is that people have saved some money for college - but very little - and then are shocked when grant money isn't there and their package is a few subsidized loans and "go see your banker."

I totally agree with your point-- my previous comments were a tangent off that.

Yes, most people see EFC of $20,000 and say "I don't have an extra $20,000 left over from my income each year to afford school". But in reality the EFC is assuming some of that $20,000 is coming from savings they should have made during the previous 18 years.


Full disclosure: Some of my comments are specific annoyances related to my own situation that I wanted to vent, but I also thought were relevant to the ways the calculations could be adjusted to more accurately reflect what a family can afford. We moved and made a significantly larger income last year (due to sign on bonuses) so our EFC is based off an income we have never made before. This is also the year that they are changing the filing to October, so that tax year will count against us for two years. We have not been able to save enough to make it completely affordable (DD is only just turning 17 and the first years of her life we were still in college ourselves), but what we have saved counts against us more harshly (DH and I just turned 35, so our savings allowance is lower).

 

[LuvOrlando]

It assumes that you started setting aside money for your kids to go to college when they were born, and set aside a fairly substantial part of your income towards that knowing it would be a huge expense.

Then it further assumes you'll take advantage of a school with reasonable tuition.

What the government doesn't want is to subsidize families who have always driven new cars, taken expensive vacations, and generally spent their kid's college education money on luxuries - and then wonder why someone else isn't paying for their kids educations to go to NYU (which really is ridiculous in terms of its cost - the tuition is bad - but room and board in NYC sends it over the top - its on my daughters list).

is it any more reasonable for tax dollars to pay for kids with poor grades and low likelihood of successful completion with that money? Guidelines run very low

 

[LuvOrlando]

What to do, what to do? Weighing heavily on my mind

 

[crisi]

is it any more reasonable for tax dollars to pay for kids with poor grades and low likelihood of successful completion with that money? Guidelines run very low

The likelihood of successful completion of college is low. If we were going to make the determination on whether you were likely to finish college, we wouldn't bother to pay for anyone's college,

Minnesota State Colleges have a 23% four year graduation rate. Our flagship has a 58% graduation rate - and has competitive admissions. Our private college system has a 66% graduation rate - in the best case around here 2 out of 3 kids don't graduate.

Penn States is 62%.

That means the smart kids who get into a place like Penn State (only 50% of applicants get in - so most of them are going to have good grades) still have a one out of three chance of not graduating in four years - when aid runs out.

 

[LuvOrlando]

The likelihood of successful completion of college is low. If we were going to make the determination on whether you were likely to finish college, we wouldn't bother to pay for anyone's college,

Minnesota State Colleges have a 23% four year graduation rate. Our flagship has a 58% graduation rate - and has competitive admissions. Our private college system has a 66% graduation rate - in the best case around here 2 out of 3 kids don't graduate.

Penn States is 62%.

That means the smart kids who get into a place like Penn State (only 50% of applicants get in - so most of them are going to have good grades) still have a one out of three chance of not graduating in four years - when aid runs out.

Doesn't really disprove my point, with a 40% roughly dropout rate among freshmen anyway shouldn't some weight/preference be given to kids with a proven track record? Not to say every kid doesn't get a chance but if given a choice between giving money to a kid who might be taking your long vacation because it's free and money to a kid who is been working hard and just doesn't happen to have a lot of money I think it should go to the kid who's working hard and just doesn't happen to have a lot of money. Maybe that's just me but if it was my choice I think I would give a little bit more to the safer bet

 

[crisi]

Doesn't really disprove my point, with a 40% roughly dropout rate among freshmen anyway shouldn't some weight/preference be given to kids with a proven track record? Not to say every kid doesn't get a chance but if given a choice between giving money to a kid who might be taking your long vacation because it's free and money to a kid who is been working hard and just doesn't happen to have a lot of money I think it should go to the kid who's working hard and just doesn't happen to have a lot of money. Maybe that's just me but if it was my choice I think I would give a little bit more to the safer bet

Grades are the biggest predictor of success. Household income is. But those kids have a chance because their parents give it to them. We are trying to level the playing field for those who weren't raised in relatively affluent family circumstances. Not give affluent kids a break.

 

[LuvOrlando]

W

Grades are the biggest predictor of success. Household income is. But those kids have a chance because their parents give it to them. We are trying to level the playing field for those who weren't raised in relatively affluent family circumstances. Not give affluent kids a break.

Are you saying smart motivated kids from poor homes do not exist? Confused because genius knows no boundaries & can happen anywhere at any time.

Motivation is what makes a success of the inate ability, at least in my socioeconomic blind view of things

 

[crisi]

W

Are you saying smart motivated kids from poor homes do not exist? Confused because genius knows no boundaries & can happen anywhere at any time.

Motivation is what makes a success of the inate ability, at least in my socioeconomic blind view of things

No, what I'm saying is that if we are going to give the aid to the kids that are most likely to graduate, we wouldn't give it to poor people because statistically they don't do as well - good grades or not - as upper middle class kids. That grades are a single predictor of success in college, and not even the best predictor of success in college. We also wouldn't give aid to kids with parents who might divorce during their time in college, kids who have health issues, kids who aren't emotionally mature enough, or kids who face financial pressure other than tuition.

Grades don't necessarily measure motivation well, nor innate ability. My husband got lousy grades though high school - and graduated from a top college - with lousy grades. And then ended up as a Corporate VP for a very large retailer.

 

[LuvOrlando]

No, what I'm saying is that if we are going to give the aid to the kids that are most likely to graduate, we wouldn't give it to poor people because statistically they don't do as well - good grades or not - as upper middle class kids. That grades are a single predictor of success in college, and not even the best predictor of success in college. We also wouldn't give aid to kids with parents who might divorce during their time in college, kids who have health issues, kids who aren't emotionally mature enough, or kids who face financial pressure other than tuition.

Grades don't necessarily measure motivation well, nor innate ability. My husband got lousy grades though high school - and graduated from a top college - with lousy grades. And then ended up as a Corporate VP for a very large retailer.

But don't you think that if the poor kids who were able to generate good grades had more reliable funding then lack of access to financial aid would remove a huge chunk of those kids from the failing out group thereby statistically improving the outcome of their socioeconomic group? Could it be possible that some low grade kids are just going because they can? Aren't at least some of the poor performing kids taking funding from kids who are more likely to be successful? And I'm not saying funding should be removed because I do think every kid should have a chance but I am wondering at what cost? Is it OK that the next Neil deGrasse Tyson or Einstein from the projects loses a chance at going to a place like MIT because some kid who wants a go takes money from the pool? If more support is given to the kids who are most likely to succeed as opposed to a shotgun approach wouldn't the statistics change? I'm just saying that it's very possible that the current method is a self fulfilling process. If funding is the single biggest indicator then shouldn't the way funding is approached be looked at?

For the record this is nothing to do with me or mine because my kids Are not candidates for any of it, although my kids do have friends who are and I have a few in mind when I'm thinking.

 

[msmayor]

There simply isn't enough 'free' aid to go around. Period. Yes, some of these huge schools have fat endowments...with big restrictions on how they can dole that money out. Big U also has fat athletic programs...they get (and give) boatloads of cash to talented athletes who by their talent raise (or keep) the school in the limelight.

Most students or parents with any expectation that they will get enough 'free' aid to go to the school of their choice/dreams/desires just because they worked hard and got great grades is going to be disappointed. The great shot for free rides (ala National Merit scholarships) have their fates sealed through their PSAT and/or SAT scores taken in their junior year of HS.

I have known some very smart hard working students. One in particular was studying engineering at Rutgers University and doing very well. Some aid, but mostly of the student loan variety (which again, IS classified as aid). Sadly, by the end of his sophomore year, his 'aid' ran dry...he couldn't qualify for any more loans. Tapped out on the Federal side and with no more private resources available, he had to suspend going to school. Six months later, he had to start making payments on those loans ($60k worth). So now, this bright and talented student who DID receive aid is trying to pay for the equivalent of a BMW on a Ford Fiesta paycheck.

College CAN be affordable, and every student that wants a degree can be successful without spending a fortune. Yes, there are some companies and fields where an Ivy League or degree from one of the major well-known universities is going to be 'useful', but if a kid is such a hard worker and go-getter, then a degree from lesser known schools (that may be more affordable) shouldn't hold them back.

 

[mistysue]

But don't you think that if the poor kids who were able to generate good grades had more reliable funding then lack of access to financial aid would remove a huge chunk of those kids from the failing out group thereby statistically improving the outcome of their socioeconomic group? Could it be possible that some low grade kids are just going because they can? Aren't at least some of the poor performing kids taking funding from kids who are more likely to be successful? And I'm not saying funding should be removed because I do think every kid should have a chance but I am wondering at what cost? Is it OK that the next Neil deGrasse Tyson or Einstein from the projects loses a chance at going to a place like MIT because some kid who wants a go takes money from the pool? If more support is given to the kids who are most likely to succeed as opposed to a shotgun approach wouldn't the statistics change? I'm just saying that it's very possible that the current method is a self fulfilling process. If funding is the single biggest indicator then shouldn't the way funding is approached be looked at?

For the record this is nothing to do with me or mine because my kids Are not candidates for any of it, although my kids do have friends who are and I have a few in mind when I'm thinking.

The problem with this line of thought is you are equating grades with effort and motivation. Plenty of 3.8 students put next to nothing in- then you have the learning disabled kids who work 10x as hard and will fight their way through. Maybe they have a 3.0, but they understand the material and have learned to fight for what they have and truly earn it without any recognition. They don't get a pat on the head every report card, they don't get the scholarship, the award, they get "well maybe if you were more like X" (who is out getting ice cream while they reread the science chapter for the 4th time)

Equating good grades in high school with motivation is how we justify assigning grades in the first place. It helps the kids who test well feel good about themselves. It's not a very good predictor of much, a significant portion of the truly successful people in this world did not do well in high school. I would think it's more the high GPA kids who go "just because they can" and because it's expected- they've been being told for years they are the best kid around- so they follow the next step and sign up for college. I suspect the kids with lower grades who struggled through would be more likely to succeed if money was taken out of the equation.
I wish there were more scholarships for "struggled like hell, ended 3rd grade 3 grade levels behind and still pulled through skipping everything fun to be a solid B- student."

 

[techtony]

I took out loans to go to college. I owe $52K. It sucks, but hey - I signed the loan paper, so all of it is on me. One thing that I do want to tell the OP though..

Do NOT take out a loan for college. Either in your name or your kids name. Cash flow college. They CAN and SHOULD go to a community college (it is cheaper) and your kid should work full time to help pay for school. And before anyone says it is impossible to go to school full time and school full time - HOGWASH! I did it, and if I can do it, anyone can. Yes - I had to take my Discreet mathematics course three times to pass - but hell that class was hard for everyone. Your kid will be MUCH better off not getting a loan. They can graduate college debt-free AND they will not be desperate for a job - any job just to start paying their loans ASAP.

Something else to consider as well - and this is for those having problems NOW. If your loans qualify for consolidation, I HIGHLY recommend doing it - NOW. Also, if you are having problems paying your bills right out of the gate, you can and should ask for a forbearance or deferment (which ever you qualify for).

You do not want a loan that will be with you longer than your family pet (yes - I am a Dave Ramsey fan).