Student Loans

My latest Reuters columns focus on financial aid and new opportunities for borrowers with private student loans to get some relief.

One of the big complaints about private student loans is how hard it’s been to consolidate or refinance these often high-rate, variable loans. Many big lenders fled this market and those that still offered the loans weren’t much interested in reducing rates for borrowers.

That’s starting to change as smaller lenders see the opportunities to cherry pick the most credit-worthy borrowers and offer them better rates. A new entrant into the market, RBS Citizens, is even offering fixed-rate refinancing. (RBS operates as Citizens Bank in the northeast and Charter One elsewhere.) For more, read “Student loan borrowers get relief from small lenders.”

Meanwhile, the financial aid season is in full swing as families submit their FAFSA forms and hope for the best. My column “How asking for aid could hurt your college chances” warns that most schools aren’t truly need blind, which is why you need a strategy for getting admitted.

Since most families need some help in cutting college costs, going without financial aid isn’t a smart option. In “Seven ways to help your child get more money for college,” I review the best ways to lower your expected family contribution. “Four financial aid strategies that can backfire” covers the strategies that won’t work.

In addition to those four, here are two other approaches doomed to fail:

Making kids “independent.” A father with a hefty income said that he didn’t plan to help any of his kids pay for college. He rationalized that without his support they could be considered “independent” for financial aid purposes and get help based on their own meager income and assets.

Sorry, Dad, but colleges closed that loophole decades ago. The Higher Education Amendments of 1992 tightened the definition of who qualified as independent for federal financial aid purposes to people who are:

• 24 years of age or older
• orphans or wards of the court and those who were wards of the court until age 18
• veterans of the U.S. armed forces
• graduate or professional students
• married
• parents or who have legal dependents other than a spouse
• students for whom a financial aid administrator makes a documented determination of independence by reason of other unusual circumstances.

A parent who simply refuses to help isn’t typically considered one of those “unusual circumstances.” Financial aid will be based on his resources, which can effectively cut off grants, scholarships and loans for the children he won’t help.

Faking in-state residency. College consultant Lynn O’Shaughnessy of San Diego heard from a family who thought they would only have to pay out-of-state tuition rates for their daughter for the first year, believing that after spending her freshman year at the school she would qualify for in-state tuition.

States vary considerably in defining residency but typically require that at least one parent be a state resident for a full year before the student starts college. If the parents are divorced, residency is based on where the custodial parent lives. FinAid.org has a list of state residency requirements on its site.