Too Poor For College Too Rich For Financial Aid
The news is constantly buzzing about the disappearing middle class, and nothing illustrates this better than the college financing problem – Too poor for college, too rich for financial aid. It’s a problem plaguing millions of families across the country, and it’s due to a combination of issues including rising college costs, smaller amounts of financial aid available, and difficult financial aid calculations that put the burden of paying for college on parents that can’t afford it.
In the end, students across the country are suffering from this gap.
Too Poor For College
It starts with joy! Your child gets accepted into their dream college and you’re so excited for them to be able to pursue their dreams. Then the acceptance packet comes and you see the cost of going to college. Your heart sinks.
This is what happened to Richard Morais. His daughter was accepted into Johns Hopkins University and the entire family was overjoyed! Then the admissions packet came, including the cost of attendance and financial aid award. The cost of attending Johns Hopkins for just one year was going to be $54,470, including room and board. And the total financial aid package amounted to just $6,000. That left $48,470 for the family to have to pay for, or for their daughter to get student loans for.
Too Rich For Financial Aid
This is what makes families too rich for financial aid.
10-001 FAFSA 615
What Parents and Families Can Do Now
When To Consider Private Student Loans
Beyond scholarships and Federal loans, there are private loans. Parents usually co-sign for these types of loans. Almost all of them offer a deferment during enrollment, meaning that a student wont have to begin paying back the loan until they graduate, or until they finish graduate school if they continue with their studies. Interest, however, accrues from the time the loan is dispersed. As with any loan, its important to have a conversation with your child about how interest rates work, and the expected amount they will need to pay each month.
If youre researching borrowing money for college, College Ave Student Loans can help. College Ave offers a wide range of private student loan options to help your family pay for college. Besides competitive interest rates and multiple repayment options, they offer useful tools like their free credit pre-qualification tool which allows you to see whether you qualify for a loan and what interest rates you can expect without impacting your credit score.
Figuring Out How To Pay For College Might Not Be As Daunting As You Think
In fact, nearly half of students received some kind of scholarship last year, according to a new survey from Sallie Mae. For most families, that free money covered a significant amount of the bill.
There are three main funding sources families draw on to cover the cost: scholarships, income and savings, and loans. Each source covered roughly one-third of the bill for tuition, fees, and room and board.
Here’s how it broke down for the average American family last year:
Recommended Reading: What Are Some College Classes
Become A House Sitter Or Pet Sitter
House sitting or pet sitting is a great option for free to low-cost housing. However, you will need to remain somewhat nomadic as you schedule a series of gigs throughout the semester.
Your academic circles can lead you to house sitting opportunities. Professors could take sabbaticals and grad students may take research fellowships.
Additional house sitting options could come from snowbirds or people who have multiple homes. For example, when retired people are spending their winters in Florida or Arizona, their vacant property could become your affordable housing.
Dont Risk Your Retirement Assets
You might be tempted to take a loan from your 401, but its a costly move. Unlike the pretax money you use to fund the 401, you’ll pay the loan back with after-tax money. Youre taxed again when you withdraw the money in retirement.
Then there’s the cost of missing out on any growth on that borrowed money while youre paying back the loan. And if you leave your job, you may have to repay the whole loan right away.
The IRS waives the 10 percent early-withdrawal penalty if you use IRA money for higher-education expenses. But youll still have to pay income taxes on the amount you withdraw, and that could bump you into a higher tax bracket.
Read Also: Is Grammarly Free For College Students
Parents: How Much College Do You Owe Your Kids
When Ray Legere’s daughter was accepted to the University of Maine last spring, a school that costs $40,000 a year, she was eager to go. She attended an affluent public high school in Niskayuna, New York, and the pressure from classmates to attend a pricey school of her choosing anywhere in the country was fierce.
Legere said his daughter felt an expensive school was a given. Instead, he was pushing for her to attend a state school close by, the University of Buffalo, maybe, which cost only $17,000. Though he could afford the higher tuition, he gave her a choice: Hed pay the full cost of a state school, but if she attended the costlier college shed have to take out loans.
Legere, a businessman, sat his daughter down and ran the numbers. He explained she would need to take out about $30,000 in loans a year. He estimated that paying a total of $120,000 in loans for 10 years at 4 percent interest would cost her $1,200 a month, or the first $9.00 an hour from her salary for 10 years.
“It’s like buying a new car, driving it into a river at the end of the year, and having nothing to show for it,” Legere recalls saying. “I told her it would be fiscally irresponsible of me to let her assume that debt.” The day after that conversation, the young woman texted her mother: Please send a deposit to the University of Buffalo.
Gift Aid: Scholarships & Grants
Scholarships and grants are by far the best method of paying for college. These sources of gift aid dont have to be repaid and can reduce the likelihood of student loan debt.
There are plenty of scholarship opportunities available. Encourage your child to spend ample time searching and applying for as many scholarships as possible. Even smaller awards can really add up and make a big difference.
Institutional Scholarships & Grants
Colleges award their students scholarships and grants through offer letters. These financial aid packages can greatly reduce the overall cost and make that school option more affordable. In addition to some automatic scholarships awarded in the financial aid package, most colleges also offer some competitive scholarships. While visiting a college, be sure to speak to the schools financial aid office and clarify any questions you may have.
Outside scholarships can come from employers, companies, national organizations, local businesses, religious centers, ethnicity groups, and plenty more. Every scholarship earned lowers the potential for student loan debt. Its important to note, however, that outside scholarship awards can affect how much money the college will award your student in their financial aid package. Earning scholarship money reduces your familys financial need, after all. Here are some great articles to help out with the scholarship search:
Also Check: Test Out Of College
Cosign A Student Loan With Your Child
If your child has exhausted their federal student loan options, private student loans could be your next step. Remember that most private student loans require a cosigner, though. If you have good credit, cosigning a student loan with your child could be another way to help them pay for college.
Cosigning a student loan lets your child benefit from your good credit. But it can also put your credit on the line if payments are late and make you responsible to pay back the loan if your child doesnt.
Learn More: How to Get a Student Loan Without a Cosigner
Check Into Section 8 Housing If Youre Over 23 Years Old
If you have a low income you might qualify for low income or Section 8 Housing. However, if you are under the age of 24, you will have to include your parents income on your application.
If their income is too high, you will not be able to qualify.
If your parents also have a low income, then you might qualify.
However, if you are 24 or older then you no longer have to include your parents income and you would just go through the regular application process.
Don’t Miss: Should I Take Summer Classes In College
What’s A Parent To Do
Theres much a parent can do to support their childs college experience without digging into their wallet. Help them search for scholarships and fill out the FAFSA. Encourage your child to get a part-time job during high school and college. And, help them make smart financial choices during their college search.
Most importantly, start the conversation about college expenses early and have it often, says Jessica Velasco from JLV College Counseling.
Financial aid is not created equal, and two colleges with identical costs could offer much different financial aid awards, explains Velasco. Therefore, as students and parents are going through the college search, financial fit is an important aspect to consider when adding colleges to the interest list. Research financial aid options at colleges by reviewing the financial aid pages as well as filling out the net price calculators to get a good idea about the amount of financial aid that may be offered if the student is admitted to the college.
Finally, explore the option of taking out loans along with your student, as long as thats manageable for you. And, together, look for tips to fill tuition gaps. There just may be more resources available for students and parents than you realize.
Published in:Private Student Loans
About the Author
More Articles in Private Student Loans
Is College Education The Next Market Bubble
A key element that occurs during a bubble is an economic disconnect between what you pay for an asset and the value you get in return. I believe this is going on today in the secondary education market. It is why if you are asking how parents pay for college, I would strongly encourage you to examine the following statistics and begin instead to evaluate your childs future education as an investment decision one that is absolutely worthwhile, but that needs to be examined relative to the return on that investment.
Read Also: Can You Apply To Multiple Colleges
Can You Afford Payments For Loans Or Tuition
Do some quick math with the total semester cost for the schools that your child is interested in. All colleges have a cost calculator available online to help you get an accurate number.
If less expensive colleges are within your budget talk it over with your child and see if the differences between the schools are worth the debt your student might have to take on to make up the difference.
Consider Taking Clep Tests
Another way to cut college costs is to test your way through college using the CLEP tests. Students can take CLEP tests through The College Board. The best part: they can begin taking CLEP tests while in high school. Taking CLEP exams saves a great deal of time and money because a $80 test takes the place of a course that can cost several hundreds or thousands of dollars, depending upon the school. In fact, if you combined the work-through-college option and the CLEP tests, your student could graduate on time even with taking a few semesters off to work!
Read Also: How To Build Credit In College
How Do Parents Pay For College
Have you ever heard people talk about market bubbles? They occur when people are willing to pay far more for an asset that its intrinsic value, or when they validate asset prices based on implausible, or unrealistic, views of the future. They happen repeatedly throughout financial history there was a tulip bubble in Denmark in the 1600s, and more recent bubbles have included the Dot Com bubble of the late 1990s, and the US housing bubble of the early 2000s. They happen when people believe they cant afford to miss out, even when the price is irrational and they cant afford it at all.
For years, the cost of college has grown at rates far outpacing the growth in wages, making the cost of a college degree, the asset, so high, parents are left wondering how they will ever pay for their childs college. But it leaves me asking a more important question is college still worth paying for?
Be Realistic About What You Can Afford
Given the steep costs of college, few families can put away enough to pay the full amount. Instead, Kantrowitz recommends a less daunting savings target: Aim to have enough savings to pay one-third of your kids college costs by the time they start school.
Another third can be covered by current income, plus scholarships and grants from college, state, and federal programs. The final third can be funded with loans taken out by the student and parents.
When your child reaches high school, start scoping out schools that are likely to be affordable. Every school has an online net price calculator that will give you an estimate of your familys share of the cost to attend.
By comparing the expected cost with your savings and income, you and your child can focus on a list of schools that are likely to be within your financial reach. Just remember that you won’t find out the actual costs until your child is admitted and receives a detailed financial aid package.
Ways To Pay For College: Federal Student Loans
As you could probably guess, federal loans are issued and backed by the U.S. government. Federal loans differ from private loans in more than name available funds for federal loans can be more unpredictable since they are dependent on changing government budgets for education spending. However, federal loans offer fixed interest rates that are generally lower than private loans from a bank, which can benefit students who want to save money over the life of their loan.
Types of Federal Student Loans
There are four main types of federal student loans:
Direct Subsidized: A loan for undergraduate students that demonstrate financial need. The U.S. Department of Education pays the interest on a Direct Subsidized Loan while the student is enrolled at least half-time.
Direct Unsubsidized: A loan for undergrad or graduate students regardless of financial need. Students are responsible for paying interest on a Direct Unsubsidized Loan while enrolled.
Direct PLUS: A loan for parents of dependent undergraduate students, or for independent graduate students.
Direct Consolidation Loans: A collection of all federal loans previously taken out that can be combined together into one federal loan.
Federal Loan Repayment Plans
There are four main types of federal repayment plans:
Federal PLUS Loans
Explore All Sources Of Funding
Make sure to apply for financial aid even if you think you won’t qualify for need-based assistance. Half of families report getting scholarships and grants to pay for school, mainly provided from the college itself. But you wont be considered for most aid unless you fill out the Free Application for Federal Student Aid .
You can apply as early as October of the year before your child plans to enter college and submit the FAFSA anytime during the school year he or she is enrolled. If your child has work-study or part-time job during the school year or a summer job, he or she could contribute several thousand dollars. Students can earn up to $6,500 a year without hurting their financial aid eligibility.
Recommended Reading: Who Buys Back Used College Textbooks
Youre Our First Priorityevery Time
We believe everyone should be able to make financial decisions with confidence. And while our site doesnt feature every company or financial product available on the market, were proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward and free.
So how do we make money? Our partners compensate us. This may influence which products we review and write about , but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.Here is a list of our partners.
What Is An Expected Family Contribution
The Expected Family Contribution, or EFC, is the amount the government believes you should be able to pay each year for education. This figure drops accordingly, if you have multiple children in college. But it isn’t halved for each child. Many parents find they’ll have grave difficulty even meeting this figure.
There is also a widespread misconception that a school won’t charge more than you can afford. Some colleges do claim to meet “full need,” and only expect you to pay the EFC, or less. Most other schools, though, don’t reduce the bill so it’s more in line with what you can afford.
At this point, if you decide to proceed with your plans to attend this institute, you’ll need to come up with additional funding. If you don’t have the cash, you may have to tap into your retirement account or your home equity line. You may also be able to take out what’s known as a Parent PLUS loan, although these are risky because credit limits are very flexible, and you may be given much more money than what you can realistically pay back.
Also Check: How To Get My Son Recruited For College Football