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Minimizing Student Loans

Minimizing Student Loans

Excessive student loans hold back graduates. They are unable to begin the journey of enjoying financial independence because of the significant loan debt they are saddled with from the day they graduate. Others are shut out altogether from higher education because they lack the funds to even start or dream about going to college.fafsa

In many cases, especially for middle class families, financial aid comes as a loan, not a grant or scholarship. The money has to be paid back. The primary collegiate financial aid tool, the Free Application for Federal Student Aid (FAFSA), has a formula to determine what the Expected Family Contribution (EFC) is for each student. The EFC is the family’s “out of pocket” expense.

If the annual cost of attendance, including tuition, room, board, transportation and textbook fees, is $22,000 and the EFC is $8,000, the school will award $14,000 in aid. This usually begins with federal loans, subsidized and unsubsidized, so perhaps the student receives $10,000 in loans. Then the school will find another $4,000 in grant or scholarship money to reach the $14,000 financial aid level.

The result? The student (or family) begins with $10,000 in financial aid loans that have to be paid back as well as an out of pocket $8,000 fee. The EFC money, if not sitting in 529s or savings accounts, usually means more loans, often for each year of college education.Student Loan Money

The FAFSA doesn’t know your day to day financial situation, the fact that your car needs $2,000 in service repairs or that your refrigerator no longer runs properly or that you are paying off extensive medical bills. The College Board’s CSS Profile, required by some universities, does take a closer look at all finances. The school might direct more grants and scholarships to your student that won’t have to be paid back. But in many cases, you receive loans and more loans, even at schools with large endowments.

Can we find another source for grant and scholarship money to help these students? Could a change in the tax code encourage wealthy taxpayers to direct more money each year into college tuition funds or endowments, earmarked to help students minimize their student loan amounts?

We’ll look more into this idea in the coming weeks.

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