Erica Cardenas

College-bound: “Show me the money!”

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Student-Money1It’s no surprise that post-secondary education has become increasingly important over time and that businesses are requiring a more highly-skilled workforce to meet the demands of today’s competitive global economy. But, while this is the case, there still continue to be growing concerns about the affordability, and accessibility, of higher education. 

According to a recent report released by the U.S. Department of Education, students and their families are bearing a greater share of college costs than a generation ago. In fact, the report notes that, at public four-year colleges and universities, tuition and fees has doubled since 1987, while the proportion funded by state and local governments has fallen by about one-third. Meanwhile, in-state tuition at public four-year colleges and universities has grown by two-thirds since 2000, after adjusting for inflation.

In an effort to help offset these trends, several new policies have been implemented to provide relief for students and their families, including the introduction of the American Opportunity Tax Credit, keeping Stafford loan interest rates low, expanding “income-based repayment,” and increasing Pell grants.

Top reasons to complete the FAFSA

With more than $150 billion available in federal student aid, every college-bound student is absolutely encouraged to complete the Free Application for Federal Student Aid (FAFSA). Here are a few convincing reasons for students and parents alike to consider completing the FAFSA.

The FAFSA is free to complete, and there is help provided throughout the application process. The   application can be accessed on the official FAFSA website at fafsa.gov and should take no more than 30 minutes to complete. In fact, there have been various measures taken over the past few years to simplify the FAFSA application process, which includes the most recent enhancement set to launch this month – the IRS Data Retrieval Tool. This tool allows students and parents to access the IRS tax return information needed to complete their application, and enables the transfer of data directly into their FAFSA from the IRS website. 

Many students are hesitant to complete the FAFSA because of misconceptions such as “parents making too much money” or “only students with good grades are awarded aid.” Reality check: eligibility is determined by a mathematical formula, not by parents’ income alone.

There is no income cut-off to qualify for federal student aid. Many factors besides income – from family size to the age of your older parent – are considered. In addition, when completing the FAFSA, the student is also automatically applying for funds from their state. While a high grade-point average may assist with academic scholarships, most of the federal student aid programs don’t take a student’s GPA into consideration. 

Federal student aid provides more than $150 billion in grants, loans and work-study funds each year. The Department of Education suggests that completing the FAFSA should be the first step toward getting federal aid for college, career school or graduate school. In fact, many states and colleges use a student’s FAFSA data to determine their eligibility for state and school aid, and some private financial aid providers may use the FAFSA information to determine whether the student qualifies for their aid.

For information and tips on completing the FAFSA, visit: studentaid.gov/fafsa.

Pay As You Earn 

According to a report released by the Department of Education in 2011, the typical worker with a bachelor’s degree earned about $1,000 a week, roughly two-thirds more than those with only a high school diploma, while the unemployment rate for workers with a bachelor’s degree was 4.9 percent, about half the rate for people with only a high school diploma. 

Though facts and figures such as these confirm that there are monetary rewards for obtaining a college degree, for many recent college graduates, monthly student loan payments can be overwhelming. However, a new repayment plan now available to borrowers, known as the Pay As You Earn Plan, could reduce monthly payments for as many as 1.6 million Direct Loan borrowers. 

The Plan caps monthly payments at 10 percent of discretionary income for eligible borrowers and complements additional repayment plans offered to assist borrowers manage their debt. 

Those who are not eligible for the Pay As You Earn Plan may still qualify for the Income-Based Repayment Plan, which caps monthly loan payments at 15 percent of a borrower’s discretionary income. More than 1.3 million borrowers are already using the Income-Based Repayment Plan. 

For those who’ve already fallen behind on student loan payments, the Consumer Financial Protection Bureau (CFPB) introduced an on-line tool this summer to help evaluate a borrower’s options. Known as the Student Loan Debt Collection Assistant, the on-line program asks a series of questions to help the user determine what steps to take if loan payments have been missed. For example, if the borrower has missed federal loan payments, the tool advises the user to ask their servicer about alternative payment arrangements, such as income-based repayment plans. 

The tool can be accessed via consumerfinance.gov/students/defaultoptions

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