1048 by sofiaie


									10:48 freep: Welcome, Freepsters!

10:49 freep: We're getting situated, so please feel free to send on your financial aid
      question and we'll get read to answer them.

10:49 freep: Our expert today is Mark Kantrowitz, publisher of FinAid.org and a
      nationally recognized expert on financial aid.

10:49 freep: He'll start answering your questions at 11 a.m.

10:51 freep: You can get started by checking out Susan Tompor's column from today on
      the subject

10:51 freep: Susan Tompor: Families look harder to cover college costs
10:53 freep: And just FYI, questions are moderated so you won't seen your question
      right away

10:59 Jewel:

      This is Jewel Gopwani, a business writer with the Detroit Free Press. I’ll help
      moderate the chat today. Here is a question sent to money@freepress.com.

      Amy asks:

      I was wondering what the usual income limit was for a Pell Grant, or does it differ
      from school to school, year to year? I have two children in college and an
      unemployed husband. Last year, one of my daughters received a Pell Grant but
      not the other daughter. This year, although our income dropped a little, neither of
      them received a Pell Grant.

11:00 Mark Kantrowitz:
      Excellent question.

      While there is no firm income cutoff on eligibility, 98% of Pell Grant recipients have family
      AGI of $50,000 or less. So an increase in family income could explain why both children
      did not qualify this year even though one did last year. But that does not explain why one
      qualified for a Pell Grant and the other didn't.

      There are a variety of factors that could have affected Pell Grant eligibility for one child but
      not the other. Pell Grant eligibility is based on the Expected Family Contribution (EFC),
      which is based on the sum of the parent contribution and the student contribution. A
      difference in EFC for the two children due to a difference in the student contribution could
      cause one to have an EFC above the eligibility threshold and the other below it. The
      student contribution is based on 20% of the student's assets and 50% of student income
      above the income protection allowance (IPA). The IPA was $3,080 last year and will be
      $3,750 this year. So a difference in their income or assets could be responsible and would
      be my best guess given the circumstances as described.

      Also, two years ago the Pell Grant was subjected to tuition sensitivity. A difference in the
      tuition charged by each child's school could be responsible. This was repealed by the
      College Cost Reduction and Access Act of 2007.

      Another common cause, though clearly not the case for this family, is when the number of
      children in college changes. Usually (but not always) an increase in the number of children
      in college will cause an increase in Pell Grant eligibility. Most often this is noticed when
      one child graduates, causing the sibling's EFC to increase.

      Finally, it is possible that there was an error on one child's FAFSA that did not appear on
      the other child's FAFSA, or one school may have granted a professional judgment
      adjustment for an unusual family financial circumstance and the other college did not. I'd
      suggest comparing the EFCs as reported on the Student Aid Reports and then comparing
      the FAFSAs as submitted. Any difference between the two could be responsible.
      Especially look for digit transpositions in income figures.
11:01 Jewel: Thanks, Mark. Here is a question from Laurie:

      Both my husband and I are fortunate to still have our jobs, however, what happens if one
      or both of us find ourselves unemployed after we submitted the FAFSA for this year? Our
      son is in his first year at MSU.
      Also, are there any options for middle class families whose buying power has greatly
      diminished but still find ourselves as not qualifying for financial aid?

11:01 Mark Kantrowitz: The Expected Family Contribution is based on the prior tax
      year. For example, if you are submitting a FAFSA for the 2009-10 academic year,
      it will be based on 2008 tax year data. If there is a change in family financial
      circumstances from last year to this year, regardless of whether it occurs before or
      after you submit the FAFSA, you should contact the college to ask for a
      "professional judgment review". Sometimes this is called a "special circumstances
      review". This includes unemployment of a primary wage earner for the family or
      even a decrease in income. It helps if you provide a copy of any third party
      documentation relating to the unusual circumstance, such as a copy of the layoff
      notice. The college has the authority to make adjustments to the inputs to the need
      analysis formula to compensate for unusual circumstances. The amount of the
      change will be based on the financial impact of the unusual circumstance. For
      example, if one parent has been laid off the school will not only want to adjust for
      the loss of income, but will also take into consideration any severance pay and
      unemployment benefits expected to occur during the academic year. That being
      said, they will also consider changes in the other parent's income. So if one parent
      is laid off but the other parent gets a big raise, both changes will be considered.
      Also tell the school about any unusual expenses, such as high unreimbursed
      medical bills. If an expense is not discretionary in nature the school is more likely
      to make an adjustment for it. The bottom line is you should always contact the
      school's financial aid office if there is anything unusual about your family's
      financial circumstances, whether an unusual expense or a change in income.

      As a middle income family you should look into the education tax benefits, such as
      the Tuition and Fees Deduction (recently extended through the end of 2009), the
      Hope Scholarship and the Lifetime Learning Tax Credit. You will most likely find
      the Hope Scholarship to be the most beneficial of the three, but you should
      examine each of them to see which is best for your specific financial

      Also, everybody, regardless of income or financial need, qualifies for the
      unsubsidized Stafford loan and for the Parent PLUS loan.

11:02 Jewel:

      Here’s another question sent to the freep:

      What type of colleges (public or private) would be more likely to provide the most financial aid
      based on merit? My granddaughter is a junior in high school, does very well in standardized tests
      and is taking all advanced level college prep courses and has about a 3.95 GPA.
11:03 Mark Kantrowitz: The colleges that aren't as well known are more likely to
      provide academic scholarships in order to attract talented students like your
      granddaughter. We list several at

11:03 [Comment From Frank C]
      I recently filed a FAFSA for my graduating senior. What's the best way to follow
      up with the schools he is interested in to see what funds may be available to him?
11:06 Mark Kantrowitz: The colleges that admit him will send you a "financial aid
      award letter" sometime in late March or early April. This will list a package of
      various awards available to him, including federal, state and institutional grants,
      need-based loans and work-study.

      If there are any unusual family financial circumstances, such as a change in
      finances from last year to this year, or any unusual non-discretionary expenses
      (e.g., unreimbursed medical bills, private secondary school tuition) bring them to
      the attention of the college by sending them a separate letter. Do not include the
      letter with your FAFSA.
11:06 [Comment From Guest]
      My daughter does not qualify for financial aid because of my income. That does
      not mean we can afford the tuition because of other financial obligations. What
      should we do?
11:09 Mark Kantrowitz: First, write a letter to the college asking for a "professional
      judgment review" and provide information about the financial obligations to the
      school. It's entirely up to the discretion of the school, but if they school decides that
      the circumstances merit an adjustment, it might lead to increased aid eligibility.

      Other suggestions include:
      1. Search for scholarships on free web sites like FastWeb.com.
      2. Use the education tax benefits, such as the Hope Scholarship, Lifetime Learning
      Tax Credit, and Tuition and Fees Deduction.
      3. The unsubsidized Stafford loan and the PLUS loan are available to all families,
      even those who do not have financial need.

11:09 [Comment From Chris]
      If you have to take a student loan is it a requirement for the parent to co-sign?
11:12 Mark Kantrowitz: Federal student loans, like the Perkins and Stafford loan, do
      not have cosigners. There is no need for the parent to cosign these loans, nor can

      The Parent PLUS, a federal loan for parents of undergraduate students, is borrowed
      by the parents, not the student.

      Private student loans, on the other hand, allow and encourage cosigners. It is a
      good idea for the parents to cosign such loans even if the student can qualify on his
      or her own. The lenders use the higher of the two credit scores not only to
      determine not only eligibility, but also the interest rates and fees. So if the parents
      have a better credit score than the student, as is usually the case, cosigning the loan
      can reduce the cost of the loan.

      Because of the credit crisis many lenders that offer private student loans have
      tightened their credit underwriting criteria, requiring a higher FICO score to
      qualify. They are also requiring more borrowers to have cosigners. For example, in
      2007 Sallie Mae had a cosigner rate of about 50%, while in 2008 this increased to
      more than 2/3.

11:13 [Comment From Guy]
      I inherited some money from a parent's estate last year, and used most of it to pay
      off debts. This is a one-time thing and does not reflect my typical annual income.
      People have said I should contact each school my child is applying to individually
      to let them know of my situation. Do you agree with that advice?
11:15 Mark Kantrowitz: I agree. This is a good example of an unusual circumstance
      that justifies a professional judgment review. An inheritance is a one-time event
      that is not reflective of ability to pay during the award year. Many colleges will
      make an adjustment to disregard it as income but will still count it as an asset so
      that you aren't double-penalized for the one-time event. Of course, if you've
      already spent the inheritance to pay down debt before filing the FAFSA, it won't
      show up as an asset on the FAFSA.

11:16 [Comment From Frank C]
      Is there a threshold of total family savings, college savings plans, other
      investments, etc. that a student should not realistically expect any assistance?
11:22 Mark Kantrowitz: Not really. The need analysis formula is complicated and there
      are a lot of aspects that can cause a family that has high income to nevertheless
      qualify for some aid. For example, the number of children in college has a major
      impact on aid eligibility. The more children in college, the lower the EFC. This is
      because the parent contribution is divided by the number of children in college.
      The EFC is heavily weighted toward income, and so ability to pay is split among
      all the children.

      It's a little known fact that only 4% of dependent students have any contribution
      from parent assets. Many parent assets are sheltered by the formula, including
      money in qualified retirement plans, the net worth of the family's principal place of
      residence, small businesses owned and controlled by the family, and an asset
      protection allowance based on the age of the older parent (typically $50,000 for
      most parents of college-age children). Even if you're among the 4%, the worst-case
      impact on aid eligibility is 5.64% of unsheltered parent assets above the asset
      protection allowance.

      Also, filing a FAFSA is a prerequisite for the Stafford loan. Everybody qualifies
      for an unsubsidized Stafford loan, but the federal government requires you to
      submit the FAFSA in order to make sure you don't also qualify for other forms of

      So even if you're earning $250,000 a year and have a lot of assets, it is still
      worthwhile to file the FAFSA.

11:22 Jewel:

      Here’s a question sent to the money@freepress.com:

       What are the key factors for divorced parents that can influence the ability to
      receive financial assistance through FAFSA and similar formulas?
11:23 Mark Kantrowitz: In the case of a student with divorced parents, only one
      parent's financial information is reported on the FAFSA. This parent, called the
      custodial parent (not necessarily the parent who has custody), is the parent with
      which the student lived the most during the twelve months ending on the date the
      FAFSA is submitted. If the student lived with neither parent more, then it is based
      on whichever parent provided more support to the student, which is usually the
      parent with the greater income. (A student might have lived with neither parent
      more in a joint custody situation where there is an even number of days in the year
      (e.g., a leap year), or when the divorce was recent, or when the parents are living
      together after the divorce.)

      Colleges will verify custody arrangements by asking for a copy of the divorce

      A separation will be treated the same as a divorce. However, an informal
      separation (as opposed to a legal separation) requires that the parents do not live
      together, so the college may ask for proof that the parents maintained separate
      residences, such as copies of leases or mortgage statements. Living with friends or
      in a hotel room (or if one parent travels frequently on business) doesn't count.

      By excluding one parent's income usually the student will qualify for more aid.

      Often the colleges will ask the non-custodial parent to complete a supplemental
      form for awarding the college's own aid.

11:23 [Comment From John]
      With two kids in college next year, will I see an increase in the amount of aid
      available to them next year?
11:28 Mark Kantrowitz: When the number of children in college increases from one to
      two (or more), usually the family sees an increase in the amount of aid available.
      There are some esoteric situations in which a family with very low income might
      see a slight decrease, but in most situations the family will see an increase.

      Here's a hypothetical example to illustrate. Suppose the parent contribution for one
      child in college is $20,000 and the student contribution is $5,000. That child has an
      EFC of $25,000 ($20,000 + $5,000). When the number of children increases to
      two, they roughly split the parent contribution in half. So each child will have a
      family contribution of $15,000 ($20,000/2 + $5,000). Financial aid is based on
      financial need, which is the difference between the cost of attendance and the EFC.
      Let's assume that the cost of attendance (COA) is $30,000. So when one child was
      in college, that child would have financial need of $30,000 - $25,000 = $5,000.
      When there are two children in college, each has financial need of $30,000 -
      $15,000 = $15,000. That's a big jump in aid eligibility.

      This is why it is better to have twins than children who are separated in age by 4
      years. Twins get more aid, all else being equal. Likewise siblings who are very
      close in age get more aid. It's an artefact of the formula.

11:28 [Comment From Brian]
      Is there a maximun income for the parents to qualify for student loans
11:31 Mark Kantrowitz: Eligibility for the Parent PLUS loan does not depend on
      income. It does, however, require that the parents not have an "adverse credit
      history". This includes having had a foreclosure, repossession, tax lien, wage
      garnishment, bankruptcy or certain other derogatory events on the credit history for
      the past five years, or having a current delinquency on any debt of 90 or more days.
      It does NOT depend on their credit score.

      Private student loans may have minimum income thresholds for cosigners and
      borrowers and may have maximum debt-to-income ratios for cosigners. They do
      not, however, have a maximum income limit. In fact, if the parents have high
      income they are more likely to qualify for a private student loan.

11:31 Jewel:

      Here’s a question sent to he freep about the Michigan Education Trust, which
      allows for tuition to be pre-purchased for a Michigan resident to any Michigan
      Public university, college or community college.

      Our daughter is finishing up her first year at Michigan State. Luckily, we have a
      MET to cover her tuition, but we are paying for room and board, books, fees, etc.

      Is she eligible to apply for scholarships and grants even though she is not a
      freshman? Do you have any websites or contacts to pass along regarding this?

      Also, I filled out the FAFSA last year and she was told she wasn't eligible for any
      funds, and with her father being retired, we thought she would be. Exactly what
      good is the FAFSA? What does the household income need to be? Are the FAFSA
      funds like a scholarship/grant or do they have to be paid back?

      Any insight you could pass along would be greatly appreciated.

11:34 Mark Kantrowitz: Many private scholarships are available to students who are
      already enrolled in college. So search free scholarship databases like

      Also, don't forget to apply for federal student aid every year. Financial
      circumstances can change each year, and Congress enacts changes to the need
      analysis formula frequently. For example, the amount of money a student can earn
      before it affects their aid eligibility will be increasing by $750 a year for the next
      few years. Federal student aid includes grants, loans and work-study.
      Also look into education tax benefits which give you some money back on your
      income tax return for college costs.

      Note that many scholarships may have a cost of attendance limit and some may be
      limited to tuition. Since the MET pays for tuition, you may find that some awards
      are not available to you. For example, the Tuition and Fees deduction is limited to
      tuition and fees, as the name suggests, so that education tax benefit may not be
      available to you. On the other hand, distributions from 529 college savings plans
      can be used to pay room and board expenses since such plans have a broad
      definition of qualified higher education expenses.

11:34 [Comment From Steve]
      Unfortunately I lost my job two weeks before I completed my MBA. I took student
      loan to pay my tuition expenses. Now that I don't have a job and the job outlook is
      soo grim and my repayemnt starts in May of this year. What should I do?
11:39 Mark Kantrowitz: The first thing you should do is call the lender(s) to tell them
      about your situation and ask about your options. You should always talk to them
      before you default, since you lose options if you default.

      There are a variety of options on federal education loans. You can use an alternate
      repayment plan, such as extended repayment to reduce the size of the monthly
      payments. Extended repayment reduces the size of the monthly payments by
      increasing the loan term. (This will, however, increase the total interest paid over
      the lifetime of the loan. For example, going from a 10 year term to a 20 year term
      on a 6.8% Stafford loan cuts the monthly payment by about a third, but increases
      the total interest paid over the life of the loan by a factor of 2.18.)

      Another option is an economic hardship deferment or forbearance. These are
      periods of time of up to three years during which your monthly payments are
      suspended or significantly reduced. Interest continues to accrue, but is added to the
      loan balance. It is not a good idea to use a deferment or forbearance for an
      extended period of time because the loan will just keep on getting bigger and
      bigger. But if you're actively looking for work and can't afford to make the
      monthly payments, a short deferment or forbearance will not do much harm.

      Private student loans also offer forbearances, but usually limited to up to a year.

11:40 [Comment From Tahnee]
      Is full financial aid still available for students with a low income level? For
      example, if the total bill is $20,000, can a student get aid for that amount?
11:43 Mark Kantrowitz: Low income students often qualify for significant amounts of
      aid. For example, a dependent student with family income of under $30,000 will
      usually qualify for an automatic zero EFC. This yields the maximum amount of
      financial aid.
      At most colleges students receiving financial aid are first subjected to a "self-help
      level" which is met through work-study and need-based loans. Then any remaining
      need is often met mostly through grants. (Of course, if the student qualifies for the
      Pell Grant and other federal/state grants they get them, as those are first-dollar

      There are more than five dozen colleges, mostly elite colleges, that have adopted
      generous financial aid policies that eliminate loans from the financial aid package,
      replacing them with grants. At such a college a student with a 0 EFC would
      graduate with no debt.

11:43 [Comment From Marcia]
      Are books deductible on income tax returns?
11:46 Mark Kantrowitz: Textbooks are not currently deductible on federal income tax
      returns. However, the US House of Representatives just passed legislation (still
      pending in the Senate) which would amend the definition of a qualified higher
      education expense for the Hope Scholarship tax credit to include "course materials"
      in addition to tuition and fees. By "course materials" they mean textbooks and
      other college-required expenses for class supplies.

11:46 [Comment From Jessica]
      I am currently applying for graduate schools and I am wondering what
      recommendations you have about the best places to look for scholarships, loans,
      grants, etc for potential graduate students?
11:47 Mark Kantrowitz: The FastWeb.com web site not only includes undergraduate
      scholarships, but also graduate fellowships, teaching assistantships and research
      assistantships. You should also submit the FAFSA at www.fafsa.ed.gov.

11:47 [Comment From Guest]
      With the skyrocketing cost of a higher education, is it even worth getting a 4 year
      degree if you are going to paying off that financial aid for the next 10 years? What
      is going to be done about those costs?
11:47 Jewel: Thanks for your questions, everyone. We have received lots, so if you
      haven't seen your question posted, don't worry, Mark will get to it.

11:48 freep: And FYI, this page will transition to a replay of the live blog as soon as it
      ends. So you can come back at any time and recap all the questions and answers.

11:54 Mark Kantrowitz: It is still worthwhile to obtain a bachelor's degree. For most
      students the increase in lifetime income exceeds, on a net present value basis, the
      net cost of their education and the opportunity cost of not working during the
      college years.

      You may have heard of the Census Bureau figure that lifetime earnings for a
      bachelor's degree are $1 million more than for someone with just a high school
      diploma. I updated this figure to $1.2 million using the same methodology in July
      2007. While some may argue about the value on a net present value basis, all agree
      that it is still financially worthwhile to obtain a college education. There are also
      other benefits of obtaining a college education. See
      www.finaid.org/educators/higheredbenefits.phtml for additional details.

      That being said, the cost-benefit tradeoffs can depend on the amount of debt, the
      field of study and the college you are attending. If you are spending $100,000 to
      get a degree for a job that will pay only $40,000, you should think seriously about
      switching to a less expensive college. Degrees in business and engineering and
      computer science (or other scientific fields) pay better than degrees in art or

11:54 [Comment From Marcia]
      Can I report on my taxes the losses incurred on my 529 plan?
11:56 Mark Kantrowitz: Yes and no. In order to report the losses on your 529 plan you
      must completely liquidate the plan and offset those losses with any gains from
      distributions on other 529 plans you may own. Then the losses are deducted as a
      miscellaneous deduction, subjected to the 2% of AGI threshold.

      On the other hand, if your 529 plan is in the red and you take a nonqualified
      distribution, you will not only not owe the 10% tax penalty but also owe no income
      tax on the distribution. The income tax and tax penalty are assessed only on the
      plan's net earnings, which are attributed to distributions pro-rata. If there are no
      earnings, there is no income tax on the distribution.

11:56 [Comment From Barney]
      Is is better to submit FASFA now (since our 2008 taxes have not been submitted)
      and go back and correct the FASFA, or wait until we have completed our 2008 Tax
12:00 freep: Thanks for your questions, everyone! We won't be able to take any more,
      but will do our best to work through those already submitted.

12:00 Mark Kantrowitz: Don't wait until you've completed your 2008 federal income
      tax return. There are many states with very early deadlines, and some colleges have
      priority student aid deadlines, so it is best to submit the FAFSA as soon as possible
      after January 1. You should try to get the figures in the right ballpark, but will have
      an opportunity to correct any errors (and will be required to do so) later.

      To get the figures in the right ballpark, start with your W2 and 1099 statements.
      Also look at the last paystub of the year and the last bank account and brokerage
      account statements. Also take a look at your 2007 income tax return to make sure
      you aren't overlooking any particular type of income, such as capital gains, interest
      and dividend income, etc., and to make sure your figures are not too far off.
      Of course, you could always complete your income tax returns early.

      This year companies have until mid-February (February 17) to mail W2 statements
      and 1099s. In previous years the deadline was end of January. So you may receive
      your W2 statements and 1099 forms two weeks later than usual.

12:00 [Comment From Guest]
      We were thinking of starting a 529 for young child; given the market does this
      make sense? Or should we wait to see what happens?
12:05 Mark Kantrowitz: You should start saving for college as soon as possible. While
      there may be further losses this year, it is difficult to predict the market bottom
      (called "timing the market") except in hindsight. If you set up the plan to make
      regular automatic monthly contributions you will get the benefit of dollar cost
      averaging. This means that when the market is down, like it is now, your
      investment will buy more shares which will ultimately be worth more.

      I have two very young children and both had losses of 25% in their 529 plans. I
      have not, however, changed their asset allocation (both are using age-based asset
      allocations) and I am continuing to contribute to their plans every month. Pulling
      out now would just lock in the losses. Moreover, in any ten year period the stock
      market is pretty much guaranteed to drop significantly, so it is not unexpected to
      have some losses for a few years. But my children have a long time to recover from
      these losses before they enroll in college, and the dollar amount of their losses is
      relatively low, given that the savings early on are not as big as the savings they will
      have when college is imminent.

12:05 [Comment From Julianne STroud]
      I have about $40,000 of equity in my home, is it wise to use that for my daughter's
      college education. My daughter does not qualify as well for finnacial aid due to our
      income. But we have other financial obligations that make me think this is the only
      place to get the money. And is it true that no student can get a student college loan
12:13 Mark Kantrowitz: Although mortgage companies like to spin home equity loans
      and lines of credit as though you are "tapping into the equity in your home", the
      reality is that these are loans. So you need to consider several issues before
      deciding whether to rely on a home equity loan or HELOC.

      1. What is the interest rate on the home equity financing? How does it compare
      with the federal Stafford and PLUS loans? Note that up to $2,500 in interest paid
      on education loans is deductible on your income tax returns as an above the line
      exclusion from income, so you can take that deduction even if you don't itemize.

      2. What are the consequences of default on the loans? If you default on a home
      equity loan you could lose your home. If you default on a PLUS loan, your home is
      safe. The federal government may have strong tools for collecting defaulted federal
      education debt (e.g., garnisheeing up to 15% of wages, attaching income tax
      refunds, etc.) but they can't repossess or foreclose on your child's education.

      Please note that federal education loans are still available. These include the
      Stafford and PLUS loan. You can get them even if you don't qualify for aid.
      Congress enacted the Ensuring Continued Access to Student Loans Act of 2008 to
      help avert a crisis in the federal student loan system. You should always borrow
      federal first, as federal education loans are cheaper, more available, and have better
      repayment terms than private student loans.

      Private student loans, on the other hand, have become much less available. 39 of
      the 60 lenders offering such loans have suspended their loan programs and those
      that remain have tightened their credit underwriting criteria and increased the
      interest rates by 2% to 4%. But most families should be able to obtain sufficient
      Stafford and PLUS loans to pay for the full cost of education, so private student
      loans are usually not necessary. (The main circumstances in which families borrow
      private loans instead of federal are when they are unaware of federal borrowing
      options, when the student is not making satisfactory academic progress and so has
      lost aid eligibility, when the school has opted out of the federal loan program
      because of a high default rate, and international students who are ineligible for
      federal education loans.)

12:13 [Comment From John]
      With two students in college next year, should I expect an increase in aide
      available, even if my income was too high for aid with the first student?
12:15 Mark Kantrowitz: This is similar to a previous question. Even if you did not
      qualify for financial aid with one child in college, it is possible that having two
      children in college will cause both of them to qualify. A lot depends on the specific
      financial circumstances. I suggest using an EFC calculator such as the ones on
      FinAid.org to play "What If" games, such as increasing the number of children in
      college to see the impact on aid eligibility.

      But you should always apply for financial aid each year, since the formula is
      complicated enough and details change each year, so failing to qualify one year
      doesn't give any indication as to whether or not you will qualify the next year.

12:15 [Comment From douglas]
      im 27, a waiter, and according to my w2 made more than 34,000 last year. i fear i
      may not qualify for enough grants, if any, to allow me to finish college. what do
      you suggest i do in filing my returns and fafsa to maximize the amount of money i
12:20 Mark Kantrowitz: If you will be quitting the job while you are in college, tell the
      college and ask for a professional judgment review. Even though this is a voluntary
      reduction in income, colleges understand that students may need to reduce income
      to focus on schoolwork. (After all, while working 15 or fewer hours a week will
      improve academics by forcing you to learn time management skills, working more
      than 15 hours a week will hurt your academic performance by taking away time
      from studying.)

      The FAFSA is heavily weighted toward income. Assuming you were not required
      to file a 1040, with an income of less than $50,000 yoiu will qualify for the
      simplified needs test, which causes assets to be disregarded. If your income were
      less than $30,000, you would have qualified for an automatic zero EFC. There's not
      much you can do about your income from last year, but look into the Tuition and
      Fees Deduction. This reduces your AGI and depending on exactly how much you
      earned, you might be able to use it and other exclusions from income to reduce
      your AGI below the $30,000 threshold.

12:20 [Comment From D. Schmidt]
      My son is currently a sophomore in a private school and the only way that we can
      afford it is via the financial aid package he has enjoyed. My current position has
      just been elimated so I will be unemployed shortly. Are there any significant
      reductions for next year that could jeperdize his current package (Pell Grant,
      Perkens Loan, Stafford)?
12:24 Mark Kantrowitz: First, you need to talk to the college to ask for a professional
      judgment review to compensate for your reduced income due to your impending
      layoff. (The British have a much more elegant way of putting it: "made

      The good news is the House just passed a stimulus bill that includes significant
      increases in student aid, including a $500 increase in the Pell Grant, a $2,000
      increase in the unsubsidized Stafford loan, and a $700 increase in the Hope
      Scholarship. This legislation is still pending in the Senate, and the current Senate
      version is not as generous. But the Senate is expected to vote on their version next
      week, and the final legislation will likely still include some improvements in
      student aid. I wish they would increase the Pell Grant more, but something is better
      than nothing.

12:24 [Comment From Guest]
      If I apply for financial aid now, how long will it take before I find out if I am
12:26 Mark Kantrowitz: If you submit the FAFSA online at fafsa.ed.gov, you will
      likely get your Student Aid Report (SAR) from the government in 2-3 weeks. The
      colleges you list on the FAFSA then use this information to assemble a financial
      aid package. How long this takes varies from college to college, but in most cases
      newly admitted students will receive a financial aid award letter in late March or
      early April.
12:26 [Comment From Guest]
      I am losing my job a 2 weeks. My daughter is a graduating senior. Will I be able to
      qualify for a parent student loan while unemployed? What if my credit rating is
      impacted during my unemployment?
12:29 Mark Kantrowitz: You will be able to qualify for a Parent PLUS loan even if you
      are unemployed. Thanks to the Ensuring Continued Access to Student Loans Act
      of 2008, you can defer repayment on the Parent PLUS loan while your daughter is
      in school and for six months after graduation. Then you will need to start making
      payments on the loan.

      Private student loans, on the other hand, do require the borrower or cosigner to
      have current employment. So loss of your job may affect your eligibility for private
      student loans.

      Loss of a job will not affect your credit score so much as failing to pay your bills
      and debts on time as per the agreement. Try to avoid being late on any debt. It is
      very hard to get a good credit score, but very easy to turn a good credit score into a
      bad one just by missing or being late on a few payments.

12:29 [Comment From David]
      My son is 21 but is on his own because he flunked out of college and burned
      through the college fund we had saved. Can he qualify for aid, or does my income
      have to be factored in?
12:31 Mark Kantrowitz: A student is considered to be a dependent student until age 24.
      (Students who are married, in graduate school, have a dependent other than a
      spouse, in the military or a veteran, or certain other circumstances will qualify for
      independent student status.) So unless he qualifies as an independent student, your
      income will still need to be reported on the FAFSA until he's age 24. (The age 24
      threshold is as of December 31 of the award year. So someone submitting the
      FAFSA now for the 2009-10 academic year who will be 24 before the end of the
      year is independent.)

12:31 [Comment From Tim]
      Can you explain the differences between the Hope Scholarship, Lifetime Learning
      Tax Credit and Tuition and Fees Deduction?
12:37 Mark Kantrowitz: The Hope Scholarship provides a tax credit of up to $1,800 for
      the first two years (both tax and academic) of postsecondary education. It is 100%
      of the first $1,200 in tuition and related expenses and 50% of the second $1,200. It
      is a per-student tax credit. The Lifetime Learning tax credit is a per-taypayer tax
      credit that is up to $2,000, and is 20% of the first $10,000 in tuition expenses paid
      by the taxpayer. There are coordination restrictions that prevent double-dipping. In
      most cases the Hope Scholarship is better if the family qualifies for both, since
      few families have enough tuition expenses to qualify for the full amount of the
      Lifetime Learning tax credit. (Any expenses paid by scholarships don't count for
      the deduction.)
      The Tuition and Fees Deduction is an above-the-line exclusion from income for up
      to $4,000 in tuition expenses. It reduces your AGI and can be taken even if you
      don't itemize. The value of the deduction in reducing taxes depends on your tax
      bracket. If you are in the 25% tax bracket, for example, it can be worth up to
      $1,000. Some families will prefer this deduction because it reduces the AGI and so
      may trigger other benefits that depend on AGI. It also has higher income phaseouts
      than the Hope Scholarship and Lifetime Learning Tax Credits. (This may change,
      as may the amount of the Hope Scholarship.) The Tuition and Fees deduction will
      expire at the end of the 2009 tax year unless extended by Congress.

12:37 [Comment From Liz]
      We have 4 kids, one in college, a senior , all 4 have 529's that have lost significant
      value. We are filling out a FAFSA for our senior, am I correct in my understanding
      that the other 529's have to be listed as investments for this child even though they
      "belong" to the siblings? Is there a place on the form to explain that these are
      designated for the other kids and are unavailable? And, will there be a transcript
      available for this chat?
12:38 Jewel: Just a reminder, this page will transition to a replay of the live blog as soon
      as the chat ends. So you can come back at any time and recap all the questions and
12:40 Mark Kantrowitz: 529 plans where the parent is the account owner and custodial
      529 plans (where the student is the account owner) must be reported as parent
      assets on the FAFSA if the student is a dependent student. If the student is an
      independent student only 529 plans owned by the student are reported. 529 plans
      owned by grandparents are not reported on the FAFSA.

      The CSS Financial Aid PROFILE, which is used by about 300 private colleges, has
      a different treatment, requiring 529 plans that name the student as a beneficiary to
      be reported.

      There is no place to explain that the 529 plans belong to siblings. This is a federal
      requirement and colleges do not have the authority to exclude 529 plans that
      belong to siblings.

12:40 [Comment From Guest]
      Is it typically true to assume that although private university's tuition can be
      considerably more than a public university, if one maxes out their financial aid
      (EFC = 0 for instance), that the private university will cover a larger % of the
      tuition in grants and other forms of aid?
12:45 Mark Kantrowitz: It is correct that more expensive colleges often provide more
      financial aid than less expensive colleges, so the net cost (cost minus all need-
      based aid) is often the same. However, whether that aid is mostly grants or mostly
      loans depends on the college. Some of the more elite colleges have adopted
      policies that substitute grants for loans in the financial aid package, making their
      out-of-pocket cost (cost minus need-based aid excluding loans) less than even
      some public colleges.

      When evaluating financial aid offers you should focus on the out of pocket cost,
      since this is the amount you will have to pay from income, savings and also future
      income in the form of loans. A college with a lower out-of-pocket cost will cost
      you less than a college with a higher out-of-pocket cost even if the net cost is the

      See FinAid's section on Financial Aid Award Letters and also the Award Letter
      Comparison Tool for more information on out-of-pocket cost and net cost.
12:45 [Comment From Linda]
      I have two questions. My husband and I make a good income. However, our
      daughter goes to school in Atlanta at about $30,000 per year. We currently owe
      $50,000 in financial aid loans. She does not qualify for need-based scholarships or
      merit-based scholarships. At the rate that we are currently going, we will owe
      $100,000 when she graduates. What advice do you have for us?
12:47 Mark Kantrowitz: A few suggestions:

      1. Take advantage of the education tax benefits, such as the Hope Scholarship,
      Lifetime Learning Tax Credit, and Tuition and Fees Deduction.

      2. Is your daughter borrowing from the Stafford loan program? If not, she should
      borrow to the limit before you borrow from the PLUS loan program, since the
      Stafford loan has a lower interest rate and fees.

      3. Consider having her transfer to a less expensive college. There are many good
      colleges that don't cost as much.

12:47 [Comment From Linda]
      My niece lost both of her parents. Will she automatically qualify for financial aid?
12:49 Mark Kantrowitz: Orphans are automatically considered independent students.
      As such her financial aid will be based only on her own income and assets. Often
      in such situations the student has little income and so will qualify for an automatic
      zero EFC, which will mean qualifying for a significant amount of financial aid.

12:49 [Comment From Marcia]
      My daughter will be applying to graduate school for the 2010 winter term at U of
      M. Does she still fill out the 2009/2010 Fasfa and send it in now, even though she
      will not be attending in the fall, but in the following semester (winter term)?
12:51 Mark Kantrowitz: I am not sufficiently familiar with Michigan state aid for
      graduate students to know whether the March 1 deadline for Michigan state aid
      involves any aid for graduate students. I don't think it does, but I'm not 100%
      certain. If it did, then you would want to submit the FAFSA now. If it doesn't, she
      can wait until she applies for admission to submit the FAFSA. It doesn't hurt to
      submit the FAFSA now. As a graduate student she will be independent and should
      complete the FAFSA to indicate this.

12:52 [Comment From Fran Costos]
      I have a sophomore and a senior in high school and have been saving for their
      college tuition since they were born. I saw their accounts drop 33% recently. I don't
      think they'll qualify for financial aid. What can we do now to make sure that we
      can afford they can go to a great 4-year university? Are there scholarships that they
      can apply for now?
12:55 Mark Kantrowitz: There are many scholarships available for high school
      students. Search free web sites like FastWeb.com to find the awards that match
      your children's profile. Or better yet, get them to search. (There are even
      scholarships for elementary school children. But no scholarship matching service
      list scholarships for children under age 13 because of the Children's Online Privacy
      Protection Act. However, you can find a list of all such awards on FinAid.org.)

      You should continue saving for their college education. Hopefully the stock market
      will start improving in the second half of 2009, so maybe you'll be able to make
      back some of the losses.

12:55 [Comment From Jon]
      My question is in regard to the MET. I recently purchased MET contracts for 2 of
      my 3 children. Have held off on the third because I am nervous about the stability
      of the fund that is used to pay for the fees when they enter college. I have
      examined the fund and seems to be secure and stable but I am not knowledgeable
      enough to determine if this is a safe investment. Interested in your thoughts on the
      security of the MET contracts. Thanks, Jon
1:01 Mark Kantrowitz: Most state prepaid tuition plans, like MET, are not backed by
     the "full faith and credit of the state". So the guarantee is only as good as the fund.
     However, I doubt that any state will allow a state plan to fail since the public outcry
     would be bad politics.

     Most prepaid tuition plans use a fairly stable balanced investment strategy to avoid
     placing the investments at risk. They use actuaries to ensure that the returns are
     sufficient to fulfill the guarantee and adjust the contribution rates accordingly. Some
     state plans suffered the same 25% to 35% losses that individual investors faced in
     the stock market. So there is reason for concern. But I think it is ok to continue
     investing. (Please note that I am not able to give you individual investment advice
     and must speak in generalities.)

1:01 [Comment From Neil Currie]
     This is more at the end of the rainbow, but my son finishes college in April. I have
     utilized the FALSA site and have had loans the past four years. What do you suggest
     I do in terms of consolidating loans to make a single payment as time goes on. Is
     there a better interest rate available by doing the paperwork a particular way?
1:07 Mark Kantrowitz: Federal loans originated before July 1, 2006 have variable
     rates. Consolidating them locks in the current rate on the loans. I believe that the
     new rates that go into effect on July 1, 2009 will be among the lowest in the history
     of the loan program, so wait until the end of May to see what the rates will be (there
     should be news stories about this topic), then compare them with the current rates. If
     the new rates are better, wait until July 1, 2009 to consolidate. You can consolidate
     with the federal government at loanconsolidation.ed.gov.

     Consolidation gets you a single payment. It also gets you access to alternate
     repayment plans that decrease the size of the monthly payment by increasing the
     loan term (and consequently, increasing the total interest paid over the life of the

     But consolidation doesn't get you a better interest rate, other than by locking in the
     interest rates on variable rate loans at the current rate. If that happens to be a very
     low rate, it will save money over the life of the loan. If you have only fixed rate
     loans, consolidation does not save you any money.

     There are also options for reducing monthly payments that don't require
     consolidation. You can get up to 25 year extended repayment without consolidating
     if you have more than $30,000 in debt with a single lender. Most lenders will also
     offer unified billing if all your loans are with the same lender. Starting July 1, 2009,
     there's a new repayment plan called income-based repayment (best for borrowers
     with high debt and low income) that is available even if you don't consolidate your

     Private student loans cannot be consolidated with federal loans. There are four
     lenders that currently offer private consolidation loans, but these all have variable
     rates. So there is not any financial benefit to consolidating private loans.

1:08 [Comment From Steve]
     I currently have a wife and daughter in college, full and part time. i am on Layoff
     and want to go back myself in the spring. Should I apply for financial aid
1:11 Mark Kantrowitz: Yes, you should apply for financial aid. Since you will be
     attending in the spring you should submit the 2008-09 FAFSA in addition to the
     2009-10 FAFSA for yourself. These will require 2007 and 2008 tax data,
     respectively. The 2008-09 FAFSA will be for the spring 2008 semester. The 2009-
     10 FAFSA will be for fall 2009 and spring 2010.

     Also, ask all of the colleges for a professional judgment review and provide them
     with documentation of your wife's enrollment and your enrollment in college. While
     children in college is automatically reported on the FAFSA, parent enrollment is a
     professional judgment item subject to the discretion of the school. The school will
     want to see proof that you really are enrolled.

1:11 [Comment From Phil]
     My son has been accepted to UM Ann Arbor. Pating forcollege wasnt going to be
     too hard because we had $61,000 in a 529 plan and my wife and i were making
     $110,000 collectivelly. But.....Now his 529 is worth $32000 and my income is the
     same right now but there is a high probability I will either be losing my job (I make
     $90000) or taking a 20% pay cut. Will my son qualify for any grants or will it be all
     loans that he will have to pay back? Thanks

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