Special Bulletin: Spread the Word — 20,000 Students Whose Postsecondary Schools Recently Closed May Qualify for Federal Help!

Do you know one or more student who recently attended classes at a branch of Education Corporation of America (ECA), a for-profit chain of 70 postsecondary schools? If so, they may need to that the U.S. Education Department (ED) is looking for them — not to do something to those students; but to do something for them!

On December 5 ECA announced it was closing all of its schools — including those named Brightwood Career Institute, Brightwood College, Echotech Institute, Golf Academy of America, and Virginia College. As a result, ED has now launched an effort to locate about 20,000 ECA students.

Students enrolled at an ECA school on or within 120 days before its closure date may qualify for the government to discharge their federal student loan debts for them. They may also be able to transfer their ECA credits to other postsecondary schools, and for help in obtaining transcripts to document their ECA credits.

ECA school closure dates are available to students through a link on ED’s Closed School webpage. ED’s also published an information sheet for students affected by ECA’s closure. Students may also call ED’s Federal Student Aid Information Center for help at (800) 433-3243 or (800) 730-8913 TTY for the hearing impaired.

Affected students should access the closed school information resources cited above if ECA’s school closures left them stuck with student debt, left them with nowhere to go to continue work toward their certificates or degrees, or both. Doing so will help the United States government help them!

College Affordability Solutions’ next regularly scheduled post will appear here on Wednesday, January 2. Until then, feel free to use our Topical Index to explore more than 100 articles on strategies for making college affordable. Happy Holidays!

During College: Use the Holiday Break to Evaluate and Develop Spending Plans

In November 2017, we recommended spending plans for all undergraduate students. This month’s holiday break is the perfect time for them to take two additional steps. First, evaluate fall spending plans. Second, make new spending plans for the next academic term.

All college students need accurate spending plans to:

  • Set financial goals and stay on track to meet them;
  • Choose more and less important costs and income streams; and
  • Successfully predict income and expense amounts and dates.

Sizing up previous plans and making future spending plans requires four steps.

  1. Review last term’s plan. Use bank, credit card, and other financial records to recall each week’s income and expenses. Compare actual amounts to original estimates. Then consider whether what made the estimates high or low will be repeated during the next term. Also identify new and different income and expenses for that term.
  2. Set financial goals for the next term that correspond to academic and life goals. A student got all Cs in his first term. But he hopes to go to graduate school. So he wants all As and Bs next term. He sets a financial goal of lowering his costs by a certain amount during that term. This will make it possible for him cut his weekly work hours, giving him more time to study.
  3. Estimate weekly income and expenses for the next term. Remember to make adjustments if that term is longer or shorter than the fall term.
  4. Schedule dates for comparing actual and estimated income and expenses during next term. Then make changes as needed.

Student income and expenses usually fall into several general categories:

  • Income — Family contributions, financial aid, reimbursements, savings withdrawals, and take-home pay; and
  • Expenses — Books and class supplies, deposits to emergency savings, personal spending, room and board (or groceries, rent, and utilities if living off-campus) transportation, and tuition and fees.

Married students should count their spouses’ salaries or wages as take-home pay. Child care costs are personal spending. So are medication and treatment costs that doctors classify as medical musts. Insurance reimbursements for such costs are reimbursements.

Don’t neglect emergency savings. A “safety net” is always needed in case there are unexpected costs.

This year’s college students average about $17,000 in spending not including tuition and fees. Unfortunately, many try to “wing it” when it comes to their spending. So it’s no surprise that the top two reasons for dropping out are financial.

This makes it absolutely necessary to review the last term’s spending plan. And it’s equally important to use results from that review when making the next term’s spending plan!

We’re planning to take a break from publishing articles over the next three weeks. But we’ll begin posting them again on this website every Wednesday beginning January 2, 2019. Meanwhile, you’re welcome to use our Topical Index to find more than 100 articles on strategies for keeping postsecondary educational costs within your means.

Happy Holidays from College Affordability Solutions!

Before College: Roth IRAs — A College Savings Option

Your newborn baby or young child may or may not go to college. If they do, you want to help him avoid massive student loan debt. But you’re line of work generates middle-class incomes. So where can you save the money you’ll need to achieve this worthy goal?

How about a Roth IRA?

What Are IRAs?

A Roth IRA is an individual retirement account.

The maximum that may be deposited into a Roth IRA is $5,550 per year, or $6,500 per year once you’re 50. This shrinks for high-income individuals and couples.

You pay no federal income taxes the earnings that grow your Roth IRA’s balance, but whatever you withdraw from that balance is taxable. Generally, there’s also a 10% penalty on withdrawals you make before you turn 59.5.

Using IRAs for College

Regardless of your age, there’s an exception under which you pay no penalty on withdrawals that don’t exceed qualified education expenses for the Roth IRA’s beneficiary at an eligible postsecondary institution.

To calculate qualified education expenses:

1. Add charges for tuition, fees, books, supplies, equipment, and special needs services the beneficiary must pay to attend the school;

2. If the beneficiary is enrolled at least half-time, add room and board, too, up to the lesser of (a) the school’s published room and board amount, or (b) the beneficiary’s actual charges for living and eating in school-owned and operated housing; and

3. Subtract the beneficiary’s tax-free education assistance — i.e. the untaxed portions of grants and scholarships; distributions from Coverdell education savings accounts; and educational assistance from employers, the Veterans Administration, and other sources.

An eligible postsecondary institution is a college, university, or vocational school eligible to participate in the federal student aid programs.

The beneficiary may be you, your spouse, or your child and grandchild, or your spouse’s child and grandchild.

Pros and Cons

Roth IRA advantages for college savings include:

Flexibility to use them for either college or retirement;

Tax-free growth;

Contributions alone can add up to at least $99,000 if you maximize them for 18 years;

Their balances don’t count toward Expected Family Contribution (EFC) when the beneficiary applies for financial aid, whereas 5.64% of other assets do.

Disadvantages include:

Amounts spent on college are lost for retirement;

Contribution limits are lower than for many other college savings instruments;

Withdrawals are taxed, whereas 529 plan withdrawals aren’t;

Untaxed portions of one year’s withdrawals count toward the beneficiary’s financial aid EFC in two more years.

Roth IRAs are good retirement saving options. They’re also good college saving options if you’re middle-class and not yet sure whether the beneficiaries will pursue postsecondary learning.

Contact College Affordability Solutions for free consultations if you’re looking for options to keep postsecondary educational costs within your means.

Before College: Common Q & As About The Student Aid Application Process

At this time of year, many students and parents start wondering about financial aid applications they’ve filed. Here are 5-6 common questions, along with their answers.

Q. We have a middle-class income. Should we even bother to submit a Free Application for Federal Student Aid (FAFSA) for our son?

A. Yes, because:

  • Your student may get unexpected grant money. For example, Forbes Magazine recently reported that over 60% of students from families earning $100,000 or more per year qualify for grants;
  • The FAFSA is required to qualify for the lowest interest student loans; and
  • Scholarship committees sometimes use Expected Family Contributions (EFCs) generated by the FAFSA as tiebreakers when applicants are equally well-qualified for funds they award.

Q. I’m divorced. Which parent should report financial data on my daughter’s FAFSA?

A. The parent with whom she lived most in the last 12 months. If she didn’t live with either parent or divided her time equally between them during this period, it’s the parent who provided more financial support to her over the last 12 months. If the reporting parent has remarried, include stepparent data, too.

Q. I applied for several scholarships over the last 6 months. Shouldn’t I have heard something by now?

A. Not necessarily. Many scholarship providers lack the resources to acknowledge the receipt of applications, and they generally notify applicants who’ll receive their scholarships from February through May.

Q. How did they ever come up with our EFC? It’s so high!

A. Your reaction’s typical. But remember, the EFC is calculated assuming you’ll devote every possible penny from your income and assets to your student before other taxpayers start subsidizing his postsecondary costs.

However, the FAFSA doesn’t collect data about unusual situations — e.g. significant income losses or high uninsured medical bills. In these cases, ask the financial aid offices at schools of interest to your student about filing “special circumstance appeals” that may lower your EFC.

Q. We filed our FAFSA in October. When will schools send our son financial aid offers?

A. Schools send these offers to most newly admitted students from late February through April.

Q. A school that admitted our daughter wants to “verify” our FAFSA data. They won’t even consider her for financial aid until we send certain documents. Do they think we lied?

A. No. Americans file 20 million FAFSAs a year. If a small percentage of them make mistakes on their FAFSAs, millions of dollars could go to students who aren’t actually qualified. Therefore, Washington requires that schools use certain documents to verify potentially erroneous FAFSA data.

But don’t worry. A new study shows that verification doesn’t impact most financial aid awards. So we recommend you provide whatever the school’s requested ASAP.

Got questions about applying for financial aid? Contact College Affordability Solutions to get answers during free consultations.

During College: Cut Your Federal Student Loan Borrowing Costs in One Simple Step

There’s one simple step you or your child can take to reduce interest that’ll be repaid on an Unsubsidized or PLUS Loan borrowed from the Federal Direct Loan Program (FDLP)?

Just pay back all or part of the loan within 120 days of its disbursement date — i.e. the date any of loan funds are spent on your tuition and fees or released to you, whichever occurs first — and attach some brief written instructions telling your loan servicer to apply all of it to this term’s FDLP Unsubsidized or PLUS Loan.

That’s it! That’s all you or your child needs to do!

The gory details . . .

First, remember three things about FDLP Unsubsidized and PLUS Loans:

(1) Interest gets charged on them beginning on the disbursement date, and it just keeps building up.

(2) When your grace period ends, outstanding interest gets capitalized — added to your loan’s principal. Thereafter, interest gets charged on the inflated principal.

(3) But 100% of what’s paid back within 120 days of disbursement reduces your loan principal and causes interest outstanding on that principal to be cancelled.

Now let’s say you’re a new freshman whose disbursement date on a $1,000 FDLP Unsubsidized Loan for the fall 2018 academic term was August 24. As fall term is ending you realize you won’t need $100 of this loan, so you pay back $100 on December 10 — 111 days after the disbursement date.

Paying back $100 within 120 days of disbursement eliminates $100 in loan principal and $52 in interest you’d otherwise repay on that principal during a standard 10-year FDLP repayment period. It’s like getting a 52% return on investment!

Your financial aid office can take your payment and written instructions and forward them to your servicer. Absent such instructions, your servicer’s required to split your payment between all of your FDLP loans, including FDLP Subsidized Loans, which are less expensive to repay.

Imagine how much you’d save by paying back more than $100 within 120 days of disbursement, or your savings if you make such a payment every term on your FDLP Unsubsidized or PLUS Loan.

Reduce what you’ll repay after graduation! Take this one simple step with whatever you don’t need from your FDLP Unsubsidized or PLUS Loan!

Contact College Affordability Solutions for free consultations on ways to reduce your postsecondary borrowing costs.

Before College: Will Your Student Lose Financial Aid If You Save for College?

A young father recently said, “I’m not saving for college. Everybody knows that anything I save will just make my kids ineligible for government grants!”

There’s some truth to this. The Expected Family Contribution (EFC) is what Washington believes the student and his family can afford to spend on a year at college. It also determines the student’s eligibility for need-based grants. And assets such as savings and investment accounts can enlarge the EFC.

This year, the government’s only large-scale grant program, Federal Pell Grants, is reserved for students with EFCs of $6,094 or less so, if savings or other assets would push an EFC above this amount, the student would become ineligible for federal grants.

Still, there are excellent reasons to save for college:

1. Savings and investments don’t add that much to the EFC. For every $100 a parent owns in assets, just $5.60 count toward the EFC, and the EFC includes only $20 out of every $100 in student-owned assets.

2. Even children with small-dollar savings accounts designated for college are three times more likely attend college and 4.5 time more likely to graduate. These ratios rise as the amounts in college savings accounts grow.

3. Federal grants are already inadequate for financially needy students. The maximum Pell Grant covers just 23.5% of 2018-19 costs at the average state college or university, so even with that maximum Pell award, your student will still need another $19,800 to make ends meet.

4. This problem will only get worse. Student costs are expected to rise sharply over the next several years — partly because inflation has reemerged and partly because legislatures keep forcing tuition increases by downsizing college appropriations. At the same time, Washington’s massive tax cuts for corporations and the wealthy are increasing the pressure cut spending on domestic programs such as Pell Grants.

What does all this mean? Don’t save for college and, if your student does qualify for federal grants, they’ll cover a smaller and smaller share of his college costs. As a result, he (and you) may have to borrow more and more in the student loans that make up 61% of all federal student aid. And since interest rates on these loans are rising, it’s increasingly costly to borrow for college.

There are many ways to amass the money your child will need for postsecondary education. But no matter how you do it, even just a little bit of saving and investing for college is a winning strategy, and a way to reduce your child’s dependence on educational debt.

Contact College Affordability Solutions for a free consultation if you’re looking for ways to make college more affordable for you or your student.

Before, During, and After College: Resources To Help You Understand Your Federal Student Loans

Few students and parents are familiar with their rights and responsibilities as student loan borrowers. Even fewer know of the resources available to help them obtain such information.

The Federal Direct Loan Program makes 90% of all student loans so, today, we’re discussing FDLP information resources for those loans.

Before and During College

To receive your first FDLP loan, you must complete an online Master Promissory Notes (MPN) — your loan contract with the government. It spells out your rights and responsibilities as a borrower. Review it carefully. Ask questions about it if necessary. Make a paper copy and store that copy in a safe place. You can never can tell when you’ll need it.

You must also complete online entrance counseling before you get your first FDLP loan. Pay close attention to its content. You’ll find it really helpful.

The Federal Student Aid (FSA) website is informative and easy to read. Under “Types of Aid,” open its Loans webpage for what you need to know about different FDLP loans, how to get them, their borrowing limits, and how they differ from private student loans. Back on the Loans webpage you’ll also find information on FDLP interest rates and fees.

Finally, your financial aid office should be able to advise you on FDLP loan issues that arise before and during college.

After College

The government provides online exit counseling when you leave school and repayment begins to draw near. Be sure to complete this counseling, and pay close attention to the facts it offers.

There’s also a How to Repay Your Loans webpage on the FSA website. It’ll connect you to guidance about making payments, finding the right repayment plan, and what to do if you’re having trouble making payments. It also links to information about loan forgiveness, cancellation, and discharge, and there’s a repayment calculator for estimating your payments under each repayment plan available to you.

The National Student Loan Data System (NSLDS), which is accessible with your FSA ID, shows you what owe on your FDLP loans, each loan’s status, and the federal loan servicer collecting them.

If you need advice about situations affecting your FDLP debt, call your federal loan servicer or the government’s Student Loan Support Center at (800) 557-7394. You can also call or email the Federal Student Aid Information Center. It’s phone number is (800) 433-3243.

No matter which federal loans you have, bookmark and use these resources. Only by being well-informed will you be able to manage your federal college debt well.

Contact College Affordability Solutions for free consultations if you have difficulty understanding anything about any of your student loans.