About Tom Melecki

40 years experience in the administration of and rule making for postsecondary student financial aid and loan programs. Tom's experience also includes advising students and their parents, providing personal financial management education to college students, research on college students and their finances, and nonprofit management.

Before, During and After College: White House Proposals Would Slash and Burn Federal Student Aid

The Trump administration recently sent Congress it’s proposed 2019-20 federal budget and put forth a related proposal to reduce what graduate students and parents may borrow from the Federal Direct Loan Program (FDLP) to an undisclosed amount.

Education Secretary Betsy DeVos announced the budget plan would provide “freedom for America’s students to pursue their lifelong learning journeys in the ways and places that work best for them. . . .” And Ivanka Trump, who helped craft the loan reduction plan, said “we need to modernize our higher-education system to make it more affordable. . . .”

Unfortunately, these schemes would make postsecondary learning less, not more affordable. Specifics:

Federal Direct Loan Program (FDLP): Besides reducing graduate student and parent loans, under the president’s budget plan Americans borrowing their first FDLP loans after June 2020 would face:

Increased Borrowing Costs: The administration would end FDLP Subsidized loans on which no interest is charged until six months after their financially needy undergraduate borrowers leave school. At current interest rates, this would cause a typical undergraduate to repay at least 8% more than he now does.

Limited Repayment Options: All borrowers would be forced into a new Income-Driven Repayment (IDR) plan with payments equalling 12.5% of discretionary income (generally defined as AGI minus 150% of poverty level).

Loss of Loan Forgiveness: Public Service Loan Forgiveness would be eliminated, and IDR would forgive any undergraduate debts that might remain after 15 years of payment, while graduate students could get forgiven on on what they still owe after paying for 30 years. This means borrowers would pay more and have less forgiven.

Tuition and Fee Increases: The budget proposal would force postsecondary schools to pay the government for FDLP loans whose borrowers default. The exact amount of such payments is not yet set, but this would no doubt force many schools to raise their prices so they can set money aside for this purpose.

Federal Pell Grant: This year the maximum Pell Grant is $6,095. Next year it’ll be $6,195. The Trump team wants to cut this maximum by 17%, to $5,135, in 2020-21, with smaller Pell awards suffering proportionally similar cuts.

Nowadays, Pell Grants are for community college, university, and trade and technical school undergraduates whose families can cover just 22% or less of their postsecondary costs. While cutting Pell appropriations by 1%, the Trump budget would extend Pell eligibility to enrollees in short-term credentialing and licensing programs — diverting Pell funds that could otherwise go to high-need associate’s and bachelor’s degree students.

Federal Supplemental Educational Opportunity Grant (SEOG): The proposed budget would eliminate all $840 million in funding for the SEOG program, which targets extra grant funds to the poorest Pell recipient. These students typically receive the maximum Pell Grant. But the average public 4-year college costs covered by those grants have declined from 43% to 24% in 20 years, making SEOG more important than ever.

Federal Work-Study (FWS): Right now FWS matches what on and off-campus employers pay students for part-time jobs. This helps students borrow less, learn marketable skills and make professional contacts to use when applying to graduate schools or jobs after college. The budget proposal would slash FWS appropriations by 56%, from $1.13 billion this year to $500 million for 2019-20.

These changes have little chance of making their way into the federal budget, but Congress could weave them into the Higher Education Act, which it’s now working to rewrite. So students and parents may wants to contact their U.S. House members and Senators to share their thoughts on these proposals!

If you need more information, feel free to contact College Affordability Solutions.

Before College: Beware of Unmet Need

Michelle plans to begin college this fall. She’ll need help paying for it, so she’s now analyzing the financial aid offers that have arrived from the colleges and universities to which she’s been admitted. In doing so, there are three questions to answer about each school — what’s my net price, will I have unmet need, and how much will my unmet need be?

Unmet need has two components:

  • Costs — tuition, fees, books, supplies, room, board, travel between campus and home, and a reasonable personal expenses; and
  • Non-repayable financial resources available to the student — grants, scholarships, and Expected Family Contribution.

So at each school, Michelle’s unmet need is the gap between her costs and her non-repayable financial resources.

Unfortunately, for all but the wealthiest students, unmet need must play a significant role in college selection. The Center for Law and Social Policy recently found that among students at:

  • Public 2-year colleges, 71% had unmet need averaging $4,920;
  • Public 4-year colleges, 75% had unmet need averaging $9,134;
  • Private nonprofit colleges, 78% had unmet need averaging $13,844;
  • Private for-profit colleges, 93% had unmet need averaging $14,815.

Unfortunately, financial aid offers may arrive on “award letters” that don’t explicitly list unmet need. So Michelle needs to do some math to determine her unmet need at each college she’s considering.

If she’s facing significant unmet need at an institution she’d like to attend, Michelle has two options — increase her non-repayable financial resources and reduce her college-related expenses.

But these probably won’t not be enough, so hopefully the student loans and work-study opportunities Michelle’s been offered will fully substitute for her unmet need. If so, she should remember to borrow only what’s absolutely necessary to cover that need.

If loans and work-study won’t cover Michelle’s unmet need, or if Michelle doesn’t want to take on debt, she faces a potentially difficult decision — to attend another college where her unmet need is lower.

Michelle’s parents may also borrow a Federal Direct Parent PLUS Loan to eliminate what remains of her unmet need after her loans and work-study awards are factored in. Institutions seldom include PLUS Loans in their initial financial aid offers, so Michelle will likely need to contact the financial aid office to request such a loan.

The the top two reasons for undergraduates dropping out — having to work to earn money and the inability to pay tuition and fees — are proxies for unmet need. And students trying to stay in school despite large unmet needs are generating many of today’s largest college debts. So beware of any institution that would leave you with significant unmet need.

College Affordability Solutions offers free consultations to students and families trying to analyze the affordability of different colleges. Contact us if we can help you.

Before College: Comparatively Shop Before Finalizing College Selection

In November, Greg was accepted to two of his state’s leading public universities — Summit Tech, where his brother Rick is a senior; and Woods State, three hours from his hometown.

In early December, Greg’s parents drove to Summit City for some holiday shopping. Upon returning, they laughingly told Greg about surprising Rick and his girlfriend when, unannounced, they dropped by his apartment near campus. That’s when Greg decided to go to Woods State. “My parents,” he silently thought, “will never drive three hours to ‘drop in’ on me unannounced.”

Early this week, both institutions’ financial aid offers arrived. They’re very similar. In addition to grants and loans, each includes a four-year scholarship worth $5,000 a year.

But Greg’s already selected Woods State (“I want to go somewhere new,” he diplomatically told his parents). So Greg and his mom and dad only glanced at Summit State’s offer.

That’s too bad because, at this pivotal point in college selection, Greg and his parents skipped a crucial step — comparative shopping. By failing to carefully contrast schools and their aid offers, they overlooked some important information. For example:

• Summit Tech’s 2019-20 cost of attendance (COA) will be $25,000 — 10% less than Woods State’s COA. Should costs continue to grow at both schools by 7% per year (the average annual increase at American public universities since 1998), four years at Woods State will cost $12,000 more than at Summit Tech

• His “four-year” scholarships are renewed for upcoming academic years only if Greg meets certain standards listed in the fine print of his financial aid offers. These standards at Woods State include at least a 3.75 GPA, while Summit Tech requires a 3.25 GPA for renewal. Greg’s a good student, but he’s more likely to lose the Woods State scholarship after as little as one year, especially if, like most freshmen, he struggles with emotional, intellectual, and social adjustments that affect his first-year grades.

To comparatively shop for colleges:

• Use financial aid offers to determine the student’s net price at each school;

• Comprehensively review every financial aid offer to avoid the games colleges play when disclosing tuition and fees and other costs, when offering financial aid and when awarding Federal TEACH grants; and

• Take college and student fit into account to reduce the chances of transferring to another institution, which generates extra costs.

Most Americans compare price and other factors before purchasing automobiles. But because higher education is far more costly and important, never finalize college decisions without first comparatively shopping. It can save you a lot. And even if your choice of schools remains unchanged, you’ll have made a fully informed decision.

Contact College Affordability Solutions if you need help comparatively shopping for colleges. Students and parents are never charged for consultations with College Affordability Solutions.

Before College: Students Needn’t Borrow Loan Dollars Just Because They’re Offered

Soon it’ll be March, the month during which America’s colleges and universities begin making financial aid offers to prospective freshmen and transfer students. For many such students, how they respond to these offers is the first step toward helping themselves graduate with less debt.

Last month we discussed net price — the costs a student must pay to attend a postsecondary institution minus the student’s grants, scholarships and tuition waivers.

Most undergraduates rely on a number of financial resources to cover their net prices. These include private scholarship funds, contributions from parents and other family members, their own savings, and money they earn through part-time jobs, etc. Amounts students and, sometimes, their parents borrow in various federal loans are also included.

The financial aid packages postsecondary schools offer students generally include loans from the Federal Direct Loan Program (FDLP). A few schools also offer the FDLP’s Parent PLUS Loans to parents of their dependent undergraduates.

Schools generally put the maximum loan amounts for which students are eligible in their aid offers. But understand this, because it’s critical — students are never required to accept a single penny of the loans they’re offered. Electronic and paper documents bearing financial aid offers usually include instructions about how to downsize or totally reject the loans in those offers.

. . . students are never required to accept a single penny of the loans they’re offered.

If students subsequently discover they need some or all of the loan amounts they once nixed, they can contact their financial aid offices and almost always get those funds reinstated.

All students, but especially those who pass up loans, should try to keep their actual expenditures below the average enrollment-related costs their institutions publish. So they need to establish and update spending plans to control what they shell out for tuition, personal, recreational, textbook, transportation and other expenses.

Those forgoing loan funds may also need to maximize funding from their other financial resources (described above).

If a student can borrow less, the first loan she should downsize or cancel is any FDLP Unsubsidized Loan she’s been offered. Why? Because, unlike FDLP Subsidized Loans, interest on Unsubsidized debt begins accumulating the day the money is released for the borrower. It then gets added to principal when repayment begins. The result is that every $100 in Unsubsidized Loans the typical freshman borrows at this year’s interest rate will cost her as much as an extra $168 by the time she finishes paying off her FDLP debt.

Students need think very carefully before accepting any of the loans they’re offered. If borrow they must, they should borrow only what’s absolutely necessary. These steps are sure ways to keep postsecondary learning as affordable as possible!

Need help analyzing your financial aid offers? Contact College Affordability Solutions for a free consultation.

After College: Use the Tools Available to You to Avoid and Resolve Student Loan Delinquency

The Federal Reserve reports that 9.08% of America’s student loan dollars are “seriously delinquent” — meaning their borrowers are 90 or more days behind on repaying them. You want to stay far away from any delinquency, especially serious delinquency. Fortunately, there tools to help do this.

Why should you care? The serious delinquency rate on student loans — which make up 45% of the federal government’s assets — is almost twice as high as on credit cards (4.49%).

So not surprisingly, you’ll face increasingly serious consequences at every stage of delinquency. In the federal programs, for example, you become delinquent after failing to make all or part of a required monthly payment within 30 days of its due date. You then immediately become liable for a 6% late fee on your delinquent debt.

Ninety days into delinquency, your tardiness is reported to all 3 major national credit bureaus, dropping your credit score and making it difficult to get consumer credit — auto loans, credit cards, mortgages, etc. If you do obtain such credit, your interest rate will be higher than that charged to your friends with better credit scores.

You default when you’re 270 days delinquent on your federal student loans. Now you’re obligated to repay your whole debt immediately. Washington hires high-pressure collection agencies to collect that debt. It also confiscates anything it owes you (tax returns, social security payments, etc.) and it may require your employer to divert up to 15% of your paycheck — all to repay your default. Finally, you lose driving, fishing, hunting, and/or occupational licenses in up to 20 states.

Ironically, almost every student loan borrower can avoid delinquency. Hiding from your loan servicer when you can’t pay seems natural but, to be blunt, it’s really stupid. Always contact your servicer and ask how to avoid or fix your delinquency.

Federal student loans, for instance, offer you several anti-delinquency tools:

Set up automatic monthly payments so forgetting your payment due date will never be a problem; and

Make a prepayment, if possible, for upcoming months in which you won’t be able to pay.

And if you’ve not yet defaulted:

Switch your payment due date if the current one doesn’t work — and if your servicer permits;

Change your repayment plan, reducing your monthly payment amount by taking more months to repay;

Borrow a consolidation loan to qualify for a longer repayment period, decreasing what you pay per month; and

Get a deferment or forbearance to temporarily postpone or reduce your monthly payments.

Aggressively managing your student debt to avoid (or end) every delinquency will prevent hurtful penalties and, remember, that’s always a good thing for you!

We’re here to help you. Feel free to contact College Affordability Solutions for advice, at no-charge, on how to manage your student loan debt.

After College: A New Way to Ease Retirement Savings While Repaying Student Loans

Last week we reported that 44 million Americans are struggling to repay $1.5 trillion in student loan debt, that Millennials have the most college debt, and that 66% of that age group have nothing put away for retirement, while only 5% of them are are on track with their retirement savings.

If these numbers prove nothing else, it’s that saving for retirement and repaying student loans at the same time is difficult, if not impossible.

But a recent Internal Revenue Service (IRS) private letter ruling (PLR) can help fix this. The PLR offers links an employer’s 401(k) contributions for an employee to that employee’s student loan payments. For any pay period in which the employee spends at least 2% of her eligible compensation (usually her salary) repaying her postsecondary loans, her employer may contribute an amount equal to 5% of such compensation to her 401(k) plan

Here’s an example — a bachelor’s degree recipient owes $28,650 (the national average) on her student loans and earns an annual salary of $36,000. She pays $294 toward her student loans in each of her 12 monthly pay periods That’s way above 2% of her eligible compensation for each of those pay periods. So with IRS permission, her employer may contribute $150 a month (an amount equalling 5% of her eligible compensation) to her 401(k).

The PLR covers only the company that requested it, but it’s expected to motivate other employers — which offer 401(k) plans to 67% of workers — to seek IRS approval for similar arrangements.

Interested employees should consult their Human Resources offices, because the PLR can be helpful to both employees and employers.

The employee wins because:

• Her employer’s 5% contribution grows her 401(k) even her relatively high student loan payments severely limit her contributions to it;

• Those student loan payments reduce her college debt faster, helping her avoid close to $1,700 in interest expenses; and

• Her federal taxes are lowered because the IRS doesn’t tax employers’ 401(k) contributions, but it does tax some other fringe benefits, including student loan repayment assistance.

Her employer wins because it:

• Gains a tool for recruiting well-educated employees — 65% of today’s college graduates have student debt, 80% of them want student loan repayment options in their benefit packages, and 81% of all workers say retirement benefits are a major factor in choice of jobs;

• Creates an employee retention incentive, as oday’s workers say they’d switch employers for better retirement benefits; and

• Earns a tax deduction on its 401(k) contributions.

Employers that adopt/adapt the PLR can help curtail their employees’ struggles to both repay student loans and save for retirement. That’s a win-win for everyone!

Contact College Affordability Solutions for a free consultation if you’re looking for alternative strategies for managing your college debt.

Before and During College: Massive Student Debt Is Undercutting Millennials’ Financial Goals, But That Can Change!

By month’s end millions of college borrowers who graduated last spring will have made their first payments on their postsecondary debts. So College Affordability Solutions is designating this “Student Loans Month.”

Every Wednesday in February we’ll post an article about how to keep our national student loan crisis from becoming your personal student loan crisis. Today’s focus is on strategies to minimize borrowing.

First, some facts . . .

Student loans are the second largest form of U.S. consumer debt. They’ve more than doubled since 2010; 44.2 million Americans now owe a record $1.6 trillion on them.

Millennials (ages 30 – 39) owe the most on student loans, and their debts undercut their efforts to meet important financial goals. For example, while 89% of millennial renters hope to buy homes, 48% have nothing saved for down payments. Likewise, two-thirds of working millennials have no retirement savings.

Good news? The improving economy helped Americans borrow 15% less for college in 2017-18 than in 2010-11.

But the economy is undependable, so other strategies are needed. They fall into three categories:

Personal Strategies

Saving and investing as much as possible for college as early as possible helps families significantly reduce student borrowing.

Aggressively seeking scholarships before and during college also helps, as does part-time employment while in high school and college. When selecting schools, comparing financial aid offers and net prices is critical. Starting at community colleges can reduce student costs and indebtedness.

There are various ways to cut tuition, housing, textbook, transportation and other postsecondary costs. And those who graduate early or on-time not only enter the workforce and start making money faster, they also lower their educational costs and borrowing needs. Toward this end, students should earn college credits in high school and avoid dropping postsecondary courses they’ll need to take (and pay for) again.

Finally, everyone interested in curbing college debt should should push institutions and elected officials to implement strategies under their control.

Institutional Strategies

One academic year now costs an average of $17,930 at community colleges and $25,890 at public 4-year colleges. These institutions need to redouble their efforts to contain their charges for tuition, fees, books, class supplies, room, and board.

Governmental Strategies

State higher education appropriations remain $1,000 per student lower than before the Great Recession, so legislators should help limit tuition increases by boosting appropriations to their institutions.

From 2008 through 2018, public 4-year college tuition and fees rose 55%, causing net college prices to rise. Therefore, Congress and the legislatures need to significantly increase grant and scholarship appropriations to reverse this trend.

Today’s students borrow too much, but they don’t have to. Pursuing the personal and other strategies listed above can help downsize college costs and borrowing.

Want more information on strategies to limit reliance on debt to pay for higher learning? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com to arrange face-to-face or telephone consultations, which we provide at no charge to students and families.