College Money for the Taking

Given how expensive it is to attend college, here’s a mind blowing statistic: High school graduates left $2.7 billion in FREE federal grant money on the table over the last academic year. According to an analysis from NerdWallet, the primary reason that families are missing on this money is because they are not completing the most important step in the process: completing the Free Application for Federal Student Aid or FAFSA. FAFSA is the gateway to education money and it is now available on October 1, three months earlier than in previous years. FAFSA is used to determine how much students and their families will receive in terms of college grants, scholarships and loans, which is why it is so important that families take the time to work through it.

For years, people have complained that the form is arduous, but the Department of Education says, “The FAFSA takes most people 21 minutes to complete.” OK, maybe 21 minutes undershoots it -- it’s probably closer to an hour, once you gather all of the documents that you need. But now that the IRS has created a way to send your tax information seamlessly to the Department of Education, the process has become a bit easier. (The IRS Data Retrieval Tool automatically fills in the online FAFSA form with the necessary tax information).

I asked Kelly Peeler, founder & CEO of NextGenVest, a service that helps students navigate the financial aid and student loan processes, what we are overlooking in the college money treasure hunt. “The biggest mistake by far is that families do not submit their FAFSA because they think they might not qualify for aid or they don't want to share tax information or Social Security numbers.” Even those that complete the form are sitting on it too long. Peeler notes that there needs to be a sense of urgency, “because families will have a higher likelihood of receiving more financial aid if they submit their correct forms earlier.”

While states, colleges, and the federal government each have their own financial aid deadlines, some states have a limited pool of funds that may run dry if you wait until the last minute to apply. To maximize your potential aid, Peeler advises submitting the FAFSA as early as possible after October 1, even though the 2017–18 deadline for federal aid is June 30, 2018.

To those who say they won’t qualify for financial aid, “so why bother going through the drudgery of doing it?” The Department of Ed clearly states, “contrary to popular belief, there is no income cut-off when it comes to federal student aid.” More importantly, you never know how your situation might change. Some of the factors affecting rewards include: a change in family income, the student’s year in school, the cost of attendance and multiple kids in college at the same time. So even if you did not get money last year, you could still be eligible for other types of aid, like work-study and low-interest loans.

Finally, if you are worried that you have not yet determined which colleges are on “wish list”, know that you can still file your FAFSA as long as you list at least one school. The Dept of Education advises that you “add every school you’re considering, even if you haven’t applied or been accepted yet. If you’re on the fence about a particular school, add it anyway. Doing so will hold your place in line for financial aid in case you end up applying for that school. You can also add or remove schools to your FAFSA later.”

#265 Navigating Financial Aid and Student Loans

As college acceptances roll in, how can families navigate the web of financial aid and student loans? Guest  Kelly Peeler, the Founder & CEO of NextGenVest.com joins the show to help you scoop up some of the $2.7 billion left on the table every year. She notes that families are befuddled by the complex and time consuming student loan application process, highlighted by the dreaded FAFSA form.

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NextGenVest can help by providing key financial aid deadline reminders, form annotations, and on-demand help over text message to get more financial aid in high school and beyond.

NextGenVest's "Money Mentor" will connect students and their families with someone who can coach them through the process. Just dial 646-798-1745 and text "I WANT HELP" and you will be connected. Kelly also discussed the student loan bubble, which could be the next financial crisis. Check out Kelly's TED talk "How to Change the World as a Millennial - Don't Be Stupid with Your Money"

Thanks to everyone who participated this week, especially Mark, the Best Producer/Music Curator in the World. Mark is back in the US and makes another appearance on the show. Here's how to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

FAFSA Freak Out

While dorm move-in day is months away, now is the time for college applicants hoping to receive financial aid to complete the much-maligned Free Application for Federal Student Aid (FAFSA). While each school sets its own financial aid due date, some of the money is available on a first-come, first-serve basis, so it’s time to get busy! Before you start moaning, you should know that you have lots of company: the National Center for Education Statistics (NCES) found that over 70 percent of all undergraduate students received some type of financial aid in recent years, of which one-third was provided by the federal government. Over 20 million people completed FAFSA forms last year.

Many parents tell me that they won’t qualify for financial aid, “so why bother going through the drudgery of doing it?” According to the U.S. Department of Education, “the FAFSA takes most people 23 minutes to complete…and contrary to popular belief, there is no income cut-off when it comes to federal student aid.”

Maybe the procrastinators are already coming up with an excuse: “I’ll wait until after April 15^th, so I’ll have my tax returns in hand." Contrary to conventional wisdom, you don’t have to wait until you file to start the FAFSA. Use your 2013 return as a guide to estimate your 2014 numbers so that the government can process the application immediately - you can submit your actual 2014 return later.

In fact, there is now a partnership between the FAFSA site and the IRS, allowing students and parents to automatically transfer the necessary tax info into the FAFSA using the IRS Data Retrieval Tool. In most cases, your information will be available from the IRS two weeks after you file. You can also change your mind about which schools you’re applying to, by logging in to the FAFSA site and updating school information – the same goes for when family income drops.

Those who don’t complete the FAFSA could be leaving a lot of money on the table and frankly, it is a pretty good trade: your time for a potential reduction in college costs. According to the College Board, the average cost of tuition and fees for the 2013–2014 academic year totaled $8,893 for state residents at public colleges; $22,203 for out-of-state residents attending public universities; and $30,094 at private colleges.

It should be noted that the same report also found that the actual amount that most students pay is lower, because of increased discounts, grants and tax benefits. Still, families need to tap whatever resources are available to finance higher education, which is why outstanding student loan balances stand at $1.13 trillion, as of September 30, 2014. There could be some relief from that mountain of debt: analysis from the New York Times shows that legislative changes to the Income-Based Repayment program (IBR) "may make it much easier for students to get out from under their debts."

Before you go into shock with all of these numbers, it might be helpful to utilize the FAFSA4caster, a free financial aid calculator that gives you an early estimate of your eligibility for federal student aid and helps families plan ahead for college.

And while not every student should attend a four-year private college, some higher education gives the average worker an advantage in the current labor market. Through the end of 2014, the national unemployment rate stood at 5.6 percent, but those who held an associate’s degree or had some college under their belts, were in much better shape, with just a 4.9 percent unemployment rate. Graduates with a bachelor’s degree or higher had a rate of just 2.9 percent. On the other end of the spectrum, those who did not finish high school have a still-high 8.6 percent rate.

And college degrees really do pay great dividends: a 2014 New York Federal Reserve study found that the return on a college education remains at about 14-15 percent, "easily surpassing the threshold for a sound investment." Separately, a San Francisco Federal Reserve study showed that the average college graduate could expect to earn at least $800,000 more than the average high school graduate over a lifetime.

Meanwhile, if you have younger kids or grandchildren and you are considering the various ways to save for college, the 529 plan is still my favorite vehicle. Under current law, 529 plans allow for tax-advantaged investing for college. Contributions within the account grow tax-free and are not taxed upon withdrawal, provided they are used for qualified higher education costs.

There was some concern after 529 plan changes ended up in President Obama's tax reform plan. Under the proposal, you would no longer be able to withdraw 529 funds on a tax-free basis. (The changes in would apply only to new contributions.) After harsh criticism, the Administration dropped the plan so 529 plans remain safe!

Student loans: What you need to know

A recent Sallie Mae study found that parents are contributing less to fund total college costs, which means that students are borrowing more. Total student loan debt , which includes Federal and private loans made to students and their parents, is now estimated to be nearing $1.2 trillion – or an average of $26,000 per student who graduated in 2013. The reason is obvious: as the costs of education rise, families have been forced to borrow more money to earn those coveted degrees. Student debt has become pervasive: 19.6 percent of adults over the age of 20 owe money on student loans, and 57 percent of them are worried about repaying this debt, according to a study by the Urban Institute. Unfortunately, the mounting student debt is likely to become even harder to repay in the future, now that Congress has linked new federally subsidized loans to the 10-year treasury yield. Those yields have spiked from 1.61 percent in May to over a two-year high of 2.95 percent. Most economists expect rates to rise even more in the future as the economy improves and the Federal Reserve reduces its monthly bond purchases.

What’s the answer? Students and their families should be very careful not to assume too much debt for education. A good rule of thumb is to keep total education debt less than the borrower’s projected first year’s salary. Of course, income varies considerably by profession. Engineering and computer science jobs can see first year salaries of over $75,000 per year, while entry level clerical jobs can be just half of that.

Another way to keep a lid on your education tab is to consider alternatives to traditional four-year colleges.  Two-year technical degrees from community colleges can be incredibly valuable; with average first-year salaries often more than graduates with bachelor’s degrees in some areas, according to collegemeasures.org.

For those who are jumping into the student loan fray, here are answers to 8 important questions about student loans:

1) What are the different types of college loans? There are three ways to borrow for education: Student loans (Federal Stafford and Federal Perkins loans), parent loans (PLUS loans), and private student loans.

2) What is a Stafford loan? A Stafford federal loan is awarded to students who are enrolled at least half time in college, complete the (dreaded) Free Application for Federal Student Aid and demonstrate financial need. Two-thirds of these loans are awarded to students with family adjusted gross income of under $50,000. Stafford loans come in two flavors -- subsidized and unsubsidized. With a subsidized loan, the government pays the interest while students are in school; with an unsubsidized loan, the student pays the interest and can defer payment until after graduation. So subsidized Stafford loans are preferable to the unsubsidized variety. The term is 10 years, although other terms are available via consolidation.

3) What is the interest rate on Stafford loans? Dating back to 1992, Congress set the interest rate on federal student loans at fixed rates ranging from 6 percent for loans issued in the 1960s to 10 percent for loans issued between 1988 and 1992. By the end of 2006, student loan rates were at 6.8 percent. The College Cost Reduction and Access Act of 2007 phased in a reduction of the interest rates on subsidized Stafford loans for undergraduate students starting July 1, 2008. The phase on newly originated undergraduate loans was 6 percent for 2008-09; 5.6 percent for 2009-10; 4.5 percent for 2010-11; and 3.4 percent for 2011-12 and 2012-2013. The rate is scheduled to revert back to 6.8 percent for the 2013-2014 school year unless Congress agrees to keep it where it is, which it is expected to do.

4) How much can an undergraduate borrow through a Stafford loan? 

Dependent Students	Annual Loan Limits
First Year	$5,500 ($3,500 subsidized/$2,000 unsubsidized)
Second Year	$6,500 ($4,500 subsidized/$2,000 unsubsidized)
Third Year and Beyond	$7,500 ($5,500 subsidized/$2,000 unsubsidized)

5) What is a Perkins loan? A Perkins loan is a subsidized federal loan offered though colleges. It works like this: The U.S. Department of Education provides funding to the school; the school determines which students have the greatest need; and then the school combines federal funds with some of its own funds for Perkins loans for qualifying students. The government pays the interest on the loan while the student is in school and also during the 9-month grace periods. There are no origination or default fees, and the interest rate is 5 percent for the 10-year repayment period.

6) What is the Federal Parent Loan for Undergraduate Students (PLUS)?PLUS loans allow parents to borrow money for uncovered education costs. Unlike with Stafford or Perkins loans, larger loan amounts are available up to the total cost of college, at a fixed interest rate of 7.9 percent. Interest is charged from the date of the first disbursement until the loan is paid in full. Credit checks are conducted for the loans, and PLUS loans are the financial responsibility of the parents, not the student.

7) What is the difference between a PLUS loan and a private loan? Private lenders may offer more flexible repayment options and perhaps a lower interest rate. However, more private loan rates are variable, which means the cost of the loan can rise in the future.

8) Can I refinance an existing loan? If you have a federal loan, then the process is pretty easy – just go to the government’s re-fi web site,  and determine if the current rate is lower than your current combined rates. The process is much more difficult for a private loan, especially for recent graduates who have not yet established a solid credit history. Additionally, there are only a half dozen private consolidation loan programs and it is notoriously difficult to qualify for a re-fi with them. The Consumer Financial Protection Bureau recently issued warnings about refinancing student loan debt.

Student loan basics

With nearly $1 trillion in total student loans outstanding, its clear that many students will have to borrow money to earn these degrees. The key is to keep total student loan borrowing levels at or below those first year salaries, so that recent graduates don’t drown under the weight of repayments. That may mean foregoing an expensive school or working harder at finding grants and scholarships, but the upside is freedom from a tremendous financial burden. Here are answers to 8 important questions about student loans, much of which I created for CBS MoneyWatch.com.

1) What are the different types of college loans? There are three ways to borrow for education: Student loans (Federal Stafford and Federal Perkins loans), parent loans (PLUS loans), and private student loans.

2) What is a Stafford loan? A Stafford federal loan is awarded to students who are enrolled at least half time in college, complete the (dreaded) Free Application for Federal Student Aid and demonstrate financial need. Two-thirds of these loans are awarded to students with family adjusted gross income of under $50,000. Stafford loans come in two flavors -- subsidized and unsubsidized. With a subsidized loan, the government pays the interest while students are in school; with an unsubsidized loan, the student pays the interest and can defer payment until after graduation. So subsidized Stafford loans are preferable to the unsubsidized variety. The term is 10 years, although other terms are available via consolidation.

3) What is the interest rate on Stafford loans? Dating back to 1992, Congress set the interest rate on federal student loans at fixed rates ranging from 6 percent for loans issued in the 1960s to 10 percent for loans issued between 1988 and 1992. By the end of 2006, student loan rates were at 6.8 percent. The College Cost Reduction and Access Act of 2007 phased in a reduction of the interest rates on subsidized Stafford loans for undergraduate students starting July 1, 2008. The phase on newly originated undergraduate loans was 6 percent for 2008-09; 5.6 percent for 2009-10; 4.5 percent for 2010-11; and 3.4 percent for 2011-12 and 2012-2013. The rate is scheduled to revert back to 6.8 percent for the 2013-2014 school year unless Congress agrees to keep it where it is, which it is expected to do.

4) How much can an undergraduate borrow through a Stafford loan? 

Dependent Students	Annual Loan Limits
First Year	$5,500 ($3,500 subsidized/$2,000 unsubsidized)
Second Year	$6,500 ($4,500 subsidized/$2,000 unsubsidized)
Third Year and Beyond	$7,500 ($5,500 subsidized/$2,000 unsubsidized)

5) What is a Perkins loan? A Perkins loan is a subsidized federal loan offered though colleges. It works like this: The U.S. Department of Education provides funding to the school; the school determines which students have the greatest need; and then the school combines federal funds with some of its own funds for Perkins loans for qualifying students. The government pays the interest on the loan while the student is in school and also during the 9-month grace periods. There are no origination or default fees, and the interest rate is 5 percent for the 10-year repayment period.

6) What is the Federal Parent Loan for Undergraduate Students (PLUS)?PLUS loans allow parents to borrow money for uncovered education costs. Unlike with Stafford or Perkins loans, larger loan amounts are available up to the total cost of college, at a fixed interest rate of 7.9 percent. Interest is charged from the date of the first disbursement until the loan is paid in full. Credit checks are conducted for the loans, and PLUS loans are the financial responsibility of the parents, not the student.

7) What is the difference between a PLUS loan and a private loan? Private lenders may offer more flexible repayment options and perhaps a lower interest rate. However, more private loan rates are variable, which means the cost of the loan can rise in the future.

8) Can I refinance an existing loan? If you have a federal loan, then the process is pretty easy – just go to the government’s re-fi web site,  and determine if the current rate is lower than your current combined rates. The process is much more difficult for a private loan, especially for recent graduates who have not yet established a solid credit history. Additionally, there are only a half dozen private consolidation loan programs and it is notoriously difficult to qualify for a re-fi with them. The Consumer Financial Protection Bureau recently issued warnings about refinancing student loan debt.