Ask Liz Weston » financial aid

Got financial aid questions? Here’s where to get some answers

lizweston — Wed, 10 Feb 2010 18:36:21 +0000

Student loan lender Sallie Mae will provide experts to answer your questions about filing out the Free Application for Federal Student Aid (FAFSA) during a live chat Thursday night, from 9 p.m. to 10 p.m. Eastern. To submit a question in advance or join the chat, visit www.SallieMae.com/FAFSA.

You’ll also find brief how-to videos to learn what documents you need to complete the aid form, get answers to commonly-asked questions and explore the next steps in the financial aid process.

Another great resource is FinAid.org. The site has a FAFSA calculator that can estimate your expected family contribution as well as tons of information about the financial aid process.

This college education may not be affordable

lizweston — Mon, 01 Feb 2010 17:42:14 +0000

Dear Liz: My daughter is a sophomore at a very expensive college, and federal loans cover only $6,500 of her costs. She has taken out two private student loans with me as a cosigner, one at 6.5% interest and the second at 9.9%. I need $15,000 more for this semester’s tuition. I am an unemployed single mother but cannot get much financial aid. She is an above-average student but cannot find any awards or scholarships.

Answer: Your daughter may need to look for a less expensive education, since it appears neither of you can really afford the one she’s getting.

Unlike federal student loans, private student loans tend to be expensive, with variable rates and less flexible repayment options. Borrowers can easily find themselves taking on far more debt than they will be able to repay after graduation, yet this debt typically can’t be discharged in bankruptcy — it can follow your daughter for life.

A better option, if you must borrow, is for you to take out PLUS loans. These are federal loans for parents and graduate students that allow you to borrow the difference between your daughter’s college costs and any financial aid, including federal student loans, she gets. The rates are fixed at 8.5% or less.

PLUS loans do require a credit check. If you don’t pass — you’re 90 days or more overdue on a bill or you’ve had a bankruptcy in the last five years, for example — your daughter’s eligibility for student loans would be increased somewhat to help compensate.

But both of you should be thinking about alternatives. You really shouldn’t borrow money if you don’t have a way to pay it back. When you’re unemployed, taking on $15,000 a semester in debt is pretty foolish.

If her school won’t reconsider her aid package in light of your unemployment, she should be researching less expensive schools to which she could transfer her credits.

Is a “dream school” worth any price?

lizweston — Wed, 27 May 2009 18:19:30 +0000

Dear Liz: This is regarding your advice to the would-be business major who was accepted at her dream college but who wasn’t offered much financial aid. I was dismayed that you suggested trading down without even knowing which college accepted her. If indeed she got into an Ivy League school, she would be crazy to give up the opportunity. If she is capable, she will be earning millions over a 40-year career. The $200,000 cost of her school would be a drop in the bucket compared with that. The top-tier schools in reality provide more opportunities for both graduate school and career advancement. It is all about “option value,” and these schools provide the greatest upside.

Answer: You may be overestimating the value of an Ivy League education. You’re certainly underestimating the risk of shouldering $200,000 in loans for an undergraduate degree.

A study by a Princeton economist found that those who are accepted at Ivy League schools, but who opt to study elsewhere, do just as well in life as those who graduate from top-tier schools.

If she stuck with her dream school, our student would quickly exhaust the low, fixed-rate federal student loans available to her. The maximum she could borrow under federal student loan programs would be $31,000. That means she would need to turn to private student loans, which tend to have variable rates that currently average around 12% and which have no caps.

Using private student loans to finance an education is equivalent to using credit cards — except unlike credit card debt, student loan debt generally can’t be erased in Bankruptcy Court.

A wiser course for this business major might be to find a more affordable undergraduate education and then seek out a brand-name MBA program. The return on that investment probably would be high enough to justify the cost.