Need-based Financial Aid...a raw deal for middle class?

Paying for College
61

<p>Community Colleges provide a strong first two years of college education and many 4 yr universities have agreements with instate CCs for eventual transfer.</p>

<p>Some students even attend CCs while in high school, racking up graduation credits at the same time they are reducing the time they have to spend at the 4 year.</p>

<p>I do think that college expenses should be able to be deducted & that students and parents should be cautioned about debt more strongly.
However, I don't think $ 20,000 is an unreasonable amount for student loans at graduation.
We were prepared to pay our EFC, however we do have to borrow the bulk of that amount. It would be nice to have lower interest rates at least.</p>

62

<p>I don't disagree on the student-held debt. Our state schools are committed to holding it to that as a max. I graduated over thirty years ago with $15k in debt and that included living at home for a year-and-a-half, transferring to a state school as OOS, and finally obtaining in-state status my last two years and working during and between semesters. Any parental contribution was unavailable at the time. I recall a "national defense student loan" for one year that wasn't extended the next because while my EFC hadn't changed, the rest of the world had apparently gotten more needy. I don't envy any kid graduating with even $20k in debt today with real income as low as it is, and living costs skyrocketing beyond anyone's expectations. A college degree is about as useful as a high-school one was in my day for job hunting. Many BA/BS holders will be working for peanuts...some as teachers, etc. It's damn hard to start out on your own these days without unbearable rental debt and health-insurance costs. Home ownership, perhaps the most important savings tool of the parents' generation, will be unobtainable for many. I don't have a solution, just an overwhelming sense of sadness.</p>

63

<p>This type of thread seems to repeat itself every once in a while by someone who doesn't understand what middle income truly is, or the extent to which a wealthy family earning in the neighborhood of $200k/year has a responsibility and obligation to actually save for college and a much greater capacity to pay for college over time through both savings and debt.</p>

<p>The number one error in this thread occurred in the first posting, when the OP supposed the hyphothetical family should have to pay for expensive colleges out of current income.</p>

<p>As calmom so pointedly asked of the OP:</p>

<p>1) How much did you save specifically for college?
2) How much are you planning to borrow?</p>

<p>A family earning $200k/year has a much greater capacity to do both of these, and this factors into any financial aid calculation.</p>

<p>A simple excel spreadsheet can be used to calculate how a relatively wealthy family can afford a private school with a modest amount of savings and borrowings.</p>

<p>For example, even if you assume it doesn't dawn on such a family to begin saving for college until the the talented and gifted child enters high school, it can be done as follows:</p>

<p>Save $10k each of the first two years (just 5% of HH income).
Save $15k the second two years.
Spend $20k each year the child is in college (just 10% of HH income).</p>

<p>Assume college expenses of $42k, $44k, $46k, and $48k, and that savings earn 8 percent per year, then that family finishes college with just $36k in debt. And they have spent at most 10% of the HH income on college expenses, which is perfectly reasonable for a family with a lot of disposible income!!</p>

<p>Assuming an interest rate of 7% on a home equity loan, they can pay that off in payments over three years totalling $15k, $15k, and $12k. Their annual expenses look like this:</p>

<p>Year 1 - $10k
Year 2 - $10k
Year 3 - $15k
Year 4 - $15k
Year 5 - $20k (first year college)
Year 6 - $20k (second year college)
Year 7 - $20k (third year college)
Year 8 - $20k (fourth year college)
Year 9 - $15k
Year 10 - $15k
Year 11 - $12k</p>

<p>Of course, as others have pointed out, when we talk about expensive private schools, which are a luxury item. If the family doesn't want to make the sacrifices listed above, then there is always a public school at less than half the cost.</p>

<p>So a relatively wealthy family can send a child to an expensive school allocating no more than 10% of their total income ($20k) per year if they look at the expense being paid for through a combination of savings and debt, not over four years, but spread out over 11 years. Of course, if this relatively wealthy family had allocated even small amounts of their disposible income to college savings in the years before high school, then their debt could have been eliminated altogether.</p>

<p>This is why most elite private schools do not provide substantial financial aid to families earning as much as $200k, because those families have lots of choices in how they pay for the college expense over time. Even if they didn't do the right thing by saving beforehand, they have a much greater ability to pay off debt with their disposible income.</p>

<p>I can tell you that as a real middle income family, we could have never thought about sending our D to Columbia if it weren't for their very generous need-based financial aid. We are very appreciative for the generosity of the institution to select students on their academic abilities rather than our ability to pay. It has made it possible to for her to attend a very good school at about the same cost to us as it would have cost to send her to an in-state public school.</p>

64

<p>My kid's hs health teacher had the students all estimate the cost of living in our area; there was a baby involved because I guess the point of the assignment was that you shouldn't have babies young bc you can't support them. But even without the baby, I was shocked when we added up what an average one bedroom apartment, utilities, car, car insurance, health insurance, food, clothes, would cost per year. I think the kid would have to bring home $50,000 before taxes. There is no way anyone can get out of college with $20K in student loans and live independantly!!!</p>

65

<p>Proud Dad reminder me of a point- every time the costs of university education increase (seemingly exponentially) the PR people mention the increased financial aid available, so a net decrease in cost. But middle class people cannot get many of those grants and those PR people are including loans as aid reducing the net cost, when all loans do is delay the cost.</p>

66

<p>I just went back and reran some numbers which demonstrate just how whiny and uninformed the OP is.</p>

<p>First of all, in the example I cited before, if the family with a $200k annual income had begun saving when the child entered middle school by saving $5k, $5k, and $7.5k in those three years, plus the savings/expenditures listed above through the end of college, they could have payed for college without incurring any debt. Their savings/expenses on college would have looked like this:</p>

<p>Year 1 - $5k
Year 2 - $5k
Year 3 - $7.5k
Year 4 - $10k
Year 5 - $10k
Year 6 - $15k
Year 7 - $15k
Year 8 - $20k (first year college)
Year 9 - $20k (second year college)
Year 10 - $20k (third year college)
Year 11- $20k (fourth year college)</p>

<p>Now, add in the sibling that is three years behind this student, and the family could have allocated the following savings/expenses over a 14 year period to pay for both sibs to attend expensive private schools without incurring any debt (again, assuming savings earns 8 percent per year, and college expenses for the second student are $48k, $50k, $52k, and $54k per year:</p>

<p>Year 1 - $5k
Year 2 - $5k
Year 3 - $7.5k
Year 4 - $15k
Year 5 - $17.5k
Year 6 - $25k
Year 7 - $30k
Year 8 - $30k (first year college)
Year 9 - $30k (second year college)
Year 10 - $30k (third year college)
Year 11- $40k (fourth year college, first year college)
Year 12 - $30k (second year college)
Year 13 - $25k (third year college)
Year 14 - $21k (fourth year college)</p>

<p>Going back to the OP's financial situation from the first post where the family has $132k in after tax income, the maximum expenditure listed above is $40k per year when both children are in college. That means this family's disposible income after saving or paying for college is never below $92,000. That disposible income after paying for college expenses is still a full 50% above the median household income (before paying for college expenses) in the US.</p>

<p>Please, don't ask me to shed a tear for people who make as much as $200k per year and complain about how stingy financial aid is for the middle class.</p>

67

<p>Scholarships! Try, try, try for scholarships! Even small ones add up and help tremendously! Even a couple of thousand dollars off helps. I am not talking about university scholarships. I mean local community scholarships and scholarships through your high schools. They are plentiful.</p>

68

<p>when all loans do is delay the cost.</p>

<p>That is an important point
For example- my D when attending a school that met 100 % of need, actually had much of her need met with self help.</p>

<p>Perkins loans can be forgiven- but you are still eventually charged interest on even subsidized loans and with the opportunities to save even more money re: college expenses, I am now advising my younger daughter to be much more aware of debt than we were with her sister.</p>

69

<p>"I was shocked when we added up what an average one bedroom apartment, utilities, car, car insurance, health insurance, food, clothes, would cost per year. I think the kid would have to bring home $50,000 before taxes. There is no way anyone can get out of college with $20K in student loans and live independantly!!!"</p>

<p>That's if a person lives in a very high cost area and doesn't share an apartment. Most people don't live in high cost areas, and when they begin independent living are sharing costs with at least one roommate.</p>

<p>I know plenty of people with debt higher than $30,000 who are living away from their parents, and are living "independently" with roommates, and aren't making $50,000 a year. They also live frugally. They shop at consignment stores, etc.</p>

70

<p>


I can also get a discount of up to 2% on the PLUS loan from some lenders, provided I agree to automatic withdrawal of payments from my account -- which is a convenience to me in any case since I do plan to pay. </p>

<p>I am carrying a PLUS loan from the time when the rates were variable and it was, indeed, a very good deal at about 4% when my son started college, but the interest rates started rising -- so I was actually glad to see a fixed rate come in, because I am old enough to remember the double-digit interest rates of the 80's. When I bought my house I think interest rates were running about 14% -- I signed on to a deeply discounted ARM and then got lucky as interest rates started to fall -- but when they hit rock bottom and started to rise again, I refinanced for a fixed rate on my home. I still view 8.5% interest as "reasonable" in a world where my credit cards are still billing at 18%. In the mid-90's when I was able to qualify for a HELOC on my home to pay off credit card debt, I believe that adjustable interest I negotiated was 11%... though that, also, went down. (Again, lucky me). </p>

<p>The interest rate on my variable PLUS (first disbursed in 2001) is 8.02%. This is lower than the maximum interest rate on the PLUS loan I am taking this year, but higher than the discounted rate I will actually be paying. </p>

<p>"Corrupt" or not, Student Loan XPress offered me an interest rate that is significantly lower than what they are allowed to charge; if the lending system shifts to one of only federal direct loans (as some advocate), then I would lose some of the benefits I have right now with a competitive market. </p>

<p>In any case, looking at interest rates alone is short sighted, because someone can always save on interest by prepaying a loan - you don't pay interest on what you don't owe - and unlike a home equity loans, there is no prepayment penalty on a PLUS loan. I look at PLUS as a way of reducing the burden of out of pocket costs while my kid(s) are still in school -- so I look at how much I can pay out per year (X) and then I use a little math to figure out how to use a loan to leverage my payments so that my payout of X equals the Y that the college wants. Assuming my income remains the same, once my daughter graduates from college, the portion of my annual expenditure that that was going toward direct payments to the college can go directly to paying down the PLUS loan -- so rather than facing 10 years of payments, I should be able to pay it all off within 2 or 3 years of the time my kids graduate. </p>

<p>Part of this equation involves borrowing what I need, but refraining from borrowing more than I absolutely need. The most difficult part of the process for me has been figuring out what that figure is.</p>

71

<p>I can also get a discount of up to 2% on the PLUS loan from some lenders, provided I agree to automatic withdrawal of payments from my account -- which is a convenience to me in any case since I do plan to pay.</p>

<p>We did that, but were surprised that before final payment was disbursed the loan was sold to a different lender who doesnt have that provision as far as I can tell.</p>

72

<p>
[quote]
There is no way anyone can get out of college with $20K in student loans and live independantly!!!

[/quote]
A kid with $20K in student loans will have a monthly payment of about $230. A kid with a college degree should be able to get a job paying at least $25K a year. My son lived in SF (very expensive area) on $25K a year very comfortably, on his own from age 20, most of the time in apartments that were nicer than his room at home. He did not own or drive a car at the time, and he opted for shared housing. He also was able to save thousands of dollars during that period, as he wanted to return to college -- I think after 3 years of working he had a next egg of about $12K. </p>

<p>I think the idea that a kid straight out of college will be living alone in a single family dwelling is unrealistic -- some may have salaries to justify that, but it does not reflect the reality of how single, 20-something adults get by when living in areas where housing is expensive. If a couple choose to live together, presumeably they have 2 incomes to contribute -- and if possible they should defer starting a family until they have sufficient income to afford it.</p>

73

<p>Emeraldkity, if your loan is sold to a different lender, the terms of the loan are still the same. So if you have the paperwork that you signed in the first place, you can simply demand the same terms.</p>

74

<p>Dadx4 -- thank you for your very cogent and detailed examples about savings & spending plans. </p>

<p>These threads do crop up repeatedly, and the one thing I have learned from them is that there are a lot of high end earners who are really ignorant and uninformed when it comes to managing their own finances. I just shake my head in bewilderment when I read someone who thinks they would be better off spending money on luxury items (fancy cars or vacations) than saving it because of the impact on financial aid -- How is a person who has spent $100K in order to get, at most, a benefit of a $5600 annual reduction in EFC better off than someone who has saved & invested that $100K and simply opted to pay a little more for college? It doesn't matter how the pay out is allocated; what matters is how much you have left over at the end. </p>

<p>I'd much rather have a $200K income and pay full freight for my kid to attend an elite private college than get the discounts that come with my $50K income. If you give me the choice of having $100 and paying $10, or having $200 and paying $50.... I'm going to do opt for the choice that has may paying $50. I can do subtraction. Apparently a lot of people with incomes above $100K can't -- or at least the ones who start whining about financial aid and the "middle class" don't seem to be able to figure out what you laid out so simply.</p>

75

<p>
[quote]
I just went back and reran some numbers which demonstrate just how whiny and uninformed the OP is.

[/quote]
</p>

<p>Dadx4 - The original poster is a kid. He is concerned about his family. You may think he has no right to his feelings, but why on earth do you have to be so unpleasant about it?</p>

76

<p>Calreader, if the OP is a kid whose parents earn $200K, it is time that the kid get a dose of reality. One of the less pleasant experiences my kids have had attending elite private colleges on financial aid is bumping up against spoiled, privileged kids who have no clue as to just how privileged and protected their lives have been. They actually think that their pampered lifestyles are typical of the "middle class". I think that was a major factor in my son's ultimate decision to shift from private to public.</p>

77

<p>My point is about the extreme incivility of tone and name-calling. It's possible to convey the exact same information and advice in a constructive and kind manner. If the goal is really to help, then that's also the best way to be heard and understood. If the goal is to make someone feel terrible for asking the question, then certainly the approach taken here is more likely to succeed.</p>

<p>I live in an affluent area, and sure, all of us (kids and adults) are apt to forget how fortunate we are. I just don't think beating people up about it is the best way to help anyone see a bigger world.</p>

78

<p>Calreader, no offense was intended. In the context of this thread, I truly don't think my comments were extemely incivil or constitute beating the OP up. The OP has had three days to come to recognize that his/her thesis is wrong in so many ways, and yet hasn't.</p>

<p>I find it offensive when a poster from a wealthy family complains about not being eligible for need based financial aid.</p>

<p>I find it offensive when a poster comes with a thesis and ostensibly seeking clarification, even asking "am I missing something big here?", but then refuses to be educated. Each time it is pointed out that, yes, you are missing something big here, the OP just dug in his/her heels and refused to concede the point.</p>

<p>Reality: the OP isn't middle class; need-based financial aid isn't intended to help the wealthy; and instead of holding his/her hand out and whining about how unfair private universities are for not giving charity to families who earn $200k/year, perhaps the OP should think about how fortunate his/her family is and recognize that attending an expensive private university is a choice for his family, not an impossibility. As I pointed out, even after paying full frieght for a private university out of current income, the OP's family HH income will still be 50% higher than the US median income. That is a reality check for you, so please don't tell me you need financial aid to attend Stanford.</p>

<p>My other frustration comes from my experience that the financial aid policies of many, many private universities, who graciously make their endowments available to help deserving kids have access to the best schools in the country, are extremely generous. Someone who who hasn’t taken the time to educate himself or taken stock of his/her family’s real financial situation is in no place to criticize the generosity of many private colleges and universities. The OP has made up a phony financial scenario that hasn’t taken into consideration AT ALL his/her family’s ability to pay for college through savings, current income, and debt, and that even with two siblings, it is possible to do this while allocating no more than 15% of his family’s HH income to send two children to expensive private universities. Yes, it is quite a hit for his family to choose to spend their money this way, but why does the OP have his hand out as if he is in need of charity? Please.</p>

<p>Personally, I think the financial aid policies of most of the private universities that meet 100% of financial need are extremely generous and targeted exactly towards lower and middle income families… the upper middle class are usually eligible for loans and work study; the middle class ($50-100k/year) are usually eligible for grants, loans, and work study on a sliding scale depending upon where you are on the income scale; and low income families (<$50k/year) are eligible for 100% grants at many institutions. That is a great thing and something we should celebrate, not denigrate.</p>

<p>I'm not trying to beat the OP up, or trying to make the OP feel terrible. But the OP's thesis, assumptions, and logic is just plain wrong.</p>

<p>Is need-based financial aid a raw deal for the middle class? NO WAY!!</p>

79

<p>well I am gonna throw $.02 more into the pile
While paying the EFC wasn't easy or even doable without taking most in loans, D took out aid above that, as well as contributed approx 1/4 of EFC from her summer job.
She was fortunate to have found a 100% need based school that she liked and was admitted to.</p>

<p>However- most schools gap- OOS are out of the question for most kids, unless you happen to find one that is a good fit and has an exchange agreement with your state for lowered tuition.</p>

<p>ISS can be expensive- not so much up front, but can add lots of extra fees that it may be hard to budget for. They also often don't seem to know what tuition is going to be until you are obligated to make a commitment.</p>

<p>Private schools, less expensive than Tufts and NYU may do a range of things that make it difficult for families.
Gapping is most common, and I can't blame them, not many schools have the endowment of Princeton.
But adding grants to the freshman year aid package and removing it for sophomore year is something families don't realize may happen.
Colleges may also offer their own loans, on top of Stafford and Perkins, and loans of course have to be paid back & not only interest is added, but since loan fees could be added the entire amount never even got to the school.</p>

<p>Its loverly that some schools offer to meet 100% of need * the way they determine need*, but most students aren't going to be accepted at those schools and are looking at schools that gap need, even if they may attempt to fill some of the gap by merit aid.</p>

80

<p>"As I pointed out, even after paying full frieght for a private university out of current income, the OP's family HH income will still be 50% higher than the US median income."</p>

<p>Not to pick nits, but with a median family income of 48K in the US, the 92K after tax and after college expense income is actually 91% higher than the US median income.</p>

<p>Now, OP and some others will complain "Yeah, but it's so expensive to live where we live". Yeah, it's expensive to live expensively. Those are choices we all make. Don't expect other taxpayers to subsidize you for choosing to live an expensive lifestyle.</p>