If you don't pay close attention to the financial aid process, you can lose out on college dollars--and that can make anyone scream.
When Nigel was a high school senior, he knew one thing for sure: he was going to be a pediatric social worker and spend his life helping disadvantaged kids. After his first semester, though, he realized that his true calling was to be a computer analyst, and soon after that he sought nirvana in the fast-growing field of music recording technology. In all he switched majors four times and transferred to two different schools, and the path to his bachelor’s degree was taking way longer than the traditional four years.
Finally, at 23, he was happily settled in as an elementary ed major, with just one semester to go, when the word came down from the financial aid office at his college: he’d run out of eligibility for any more loans and grants. So Nigel decided to drop out for a couple of semesters, to earn enough money to complete his degree.
Sounds like a good idea, right? Wrong. For Nigel, it was just the beginning of a financial aid nightmare. Without a degree, the only job he could land paid minimum wage—and that left nothing for college savings after his rent and car payment. To make matters worse, his college loans came due six months after he had left school.
Strapped for cash, his loans went into default and his credit rating tanked. Now, just one semester shy of graduation, he’s stuck in the twilight zone—not enough money to pay for his last term of college, and a credit rating that’s so bad he can’t even get a loan to finish up.
As Nigel learned, even the best financial aid packages come with strings attached. Most require you to maintain a certain GPA; some expect you to complete your degree in four years; others obligate you to keep playing field hockey or work on the student newspaper even when you don’t feel like it anymore. Nigel didn’t know any of this, and that’s what got him into trouble. “Students and parents don’t understand how the aid process works.,” says Kal Chany, author of Paying for College Without Going Broke (Random House, 2002). “Students may feel they’re too busy to pay attention to all the details, but ignoring them can cost a lot of money.”
Some two-thirds of all full-time college students receive financial aid, according to the National Center for Education Statistics. That’s no surprise, considering college costs much more money than most families can afford. The College Board reports that the average cost to attend a private four-year institution for one year, including room and board, was just about $25,000 in 2002–2003. State schools averaged about $9,600. The good news is that $90 billion in financial aid was available last year, and scholarship growth is outpacing loan growth. But to get the money you’ve got to know how to play the game or—like Nigel—you could be stuck in a financial nightmare. Here are some real-life horror stories. Don’t let them happen to you!
The night of the living deadline
Louisa was about to begin her sophomore year at a private university in Texas when she got her financial aid award letter. To her shock, the amount she would receive was about $10,000 less than she’d been awarded as a freshman. Why? Her father didn’t have the necessary information in January, so he waited until March to fill out the financial aid paperwork and send it in. By the time the school received it, their supply of grant money had already dried up.
“It was awful,” says Louisa. “I still received my government loans, but the grants were the only reason I was able to come to this school in the first place.” Louisa considered transferring to a less expensive school, but her parents were able to scrape together the money she needed through bank loans. The following year, Louisa’s family mailed off all their forms by the second week of January. “I’m in a lot of debt,” says Louisa, now a senior, “and I almost missed out on finishing my education because of that slip-up.”
Avoid the nightmare
Take deadlines seriously. “Deadlines are a very big deal,” says Paul Marthers, Vice President for Enrollment at Reed College in Portland, Oregon. “I’ve seen so many eligible students miss out on financial aid because their papers weren’t submitted on time. Colleges have to draw the line on when they can stop making awards.”
Be an early bird. Send in your Free Application for Federal Student Aid (FAFSA) as soon after January 1 as possible. Make sure all the other forms your college requires are in well before the school’s deadline also. Institutions have grant money to help students, but there’s only so much to go around, and if you wait too long, the money could be gone.
Estimate your tax return. If your parents haven’t received all their tax documents yet, they can prepare an estimated FAFSA, based on the last paycheck of the year. Later on, when their tax returns are finalized, they will need to inform the financial aid offices of any changes—but for most families, any changes are minor.
Haunted by the ghost of paychecks past
When Samantha was a high school senior in Los Angeles, she thought she had the solved the mystery of how to pay for college. An outgoing girl who was active in her school’s drama club, she auditioned for television commercials and hit the jackpot. She got a part in a breakfast cereal ad that earned her more than $8,000. But that windfall will end up costing her more than $3,200 in grant money for her freshman year.
“This commercial was a one-time deal,” explains Samantha. “I have no plans of doing any more while I’m in school.” But the college based its financial aid award on the high income that her one-time earnings contributed to. To make up the difference, Samantha will have to take on $3,000 more in student-loan debt for her first year alone.
Avoid the nightmare
Put your energy into your studies. Concentrate on getting the best grades you can. “Students need to understand that every time they get an A instead of a B it can increase their financial aid for four years,” explains Connie Cooper, President of College Foundation Planners in Tustin, California.
Be careful about how much you work. Don’t think that working three jobs will help you pay your way through college—chances are, it will hurt. “When the federal government determines your financial aid,” says Kal Chany, “for every dollar you earn over $2,500, they will reduce your aid by 50 cents on the dollar. And if you save your earnings, the situation is even worse—you’ll lose 85 cents on every dollar you save over $2,500.”
Trapped in the divorce wars
Tom, whose parents split up five years ago, lives with his mom in California and receives child support from his dad, who lives in Colorado. A top-notch student, he applied—and was admitted—to six universities. But he wasn’t so smart about financial aid. When he filled out his FAFSA, he reported the income and assets of his father instead of the much lower numbers of his mother. “Basically, I screwed up,” Tom explains. “I ignored the part of the FAFSA that explains what to do if your parents are divorced.” That was a mistake that put all but one of those six universities out of his reach.
Students whose parents are divorced should base their FAFSAs on the income of the parent they live with. That would have made Tom eligible for substantial grants and scholarships. But by the time Tom learned that lesson it was too late. He filed a corrected FAFSA but five of the schools had already given out all their grant money. The sixth, an elite private school in California, was able to up Tom’s grant by $9,000, allowing him to enroll. He had come perilously close to missing out on college entirely.
Avoid the nightmare
Know the rules. You think divorce is complicated already? Hold on. It’s about to get way more complicated. Here’s the deal: when you’re filling out your FAFSA, the only parental income to report is that of the custodial parent. That’s not necessarily the parent granted custody by a judge, or even the one who pays your bills. It’s the one you live with most of the time. If the parent you live with has remarried, you will also need to report the income of the stepparent on your FAFSA.
Some colleges—usually private ones—will ask for other forms that detail the income of the noncustodial parent. But when it comes to applying for federal aid, remember: the custodial parent only. When in doubt, call the financial aid office of each school you are applying to and get the lowdown.
Knowledge is power, so make it your business to be well informed. “If Tom had called the schools in the first place,” says Connie Cooper, “and asked, ‘Do I use my mother’s or my father’s income?’ he and his family would have saved themselves a lot of trouble.”
Eaten alive by scholarship sharks
Nobody in Jill’s family had ever been to college, and her parents were determined that Jill —an honor student—would break that trend. But they didn’t have much money, and the financial aid process seemed daunting. So when they learned about a scholarship search service that, in exchange for a $495 fee, would help them find the money for Jill’s education, they signed right up.
“We didn’t know much about college,” says Jill’s mom. “We figured that these people would have the information. We thought they could help us. But it was a waste of money—I could have done it all my own.” After paying $500 up front, Jill’s parents signed forms authorizing the scholarship service to debit $20 a week from their checking account. In return, they received information about federal loans and grants—something they could have learned for free at the high school guidance office.
Avoid the nightmare
Be cautious. Hundreds of students lose money to scholarship scams each year, and many lose money in to phony scholarship programs. (Check out “Six Signs That Your Scholarship Is Sunk” at www.ftc.gov/bcp/conline/edcams/scholarship). Don’t be taken in. Watch out for high-pressure sales pitches that push you to sign up immediately. No reputable service would require you to make up your mind on the spot.
Rely on free information. Talk with your guidance counselor, consult guidebooks in the library, and access up-to-the-minute sources on the Web. Don’t pay for information you can easily get for free.
Haunted by the ghost of lost loans
Josh was ready to start law school in Boston after taking a year off to travel and teach. But a couple of days before his first law class, he learned that his $12,000 loan application had been denied.
It turned out that although Josh had made payments faithfully on his $15,000 Stafford college loan during his year off, he’d forgotten to pay back a $400 Perkins loan. “It was a stupid mistake, and it really cost me,” he says. Josh’s family scraped the money together for him by dipping into their savings and borrowing from a bank and family members. But for a few scary days, it looked like his dream of becoming a lawyer might not come true.
Missing payments on your college loans can have nasty consequences. Not only can it keep you from getting loans to help you finance graduate school, it can be noted on your credit report, and that can haunt you years later when you try to make a big purchase like a car or a house.
Avoid the nightmare
Ask for help. If you run into a credit problem, seek out your options right away. You may be able to ask a family member with a good credit history to co-sign your loan, or find emergency funds from your school’s financial aid office. “There’s a multitude of things to put together to bail a person out,” says Jack Williams, Director of Student Financial Services at Rider University in Lawrenceville, New Jersey. “If a parent applies for a loan and is denied, we can use that as a basis to award additional Stafford loan resources.”
Know what you owe. By the time you graduate from college, you might have a dozen different loans from as many lenders, so be sure you sit down with your financial aid officer and go over all the details. Know your deferral options and find out what the monthly payments will be and where to send them. Loan consolidation programs may be helpful.
Pay on time. This is really important! And if you’re having trouble making ends meet, call your lenders and let them know. They can arrange for lower monthly payments or even a hardship forbearance until you get back on your feet.