How to consider financial aid and pay for college

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Supreme Court decisions that struck down affirmative action programs and President Biden’s plan to cancel student debt will affect millions of people, whether they’re about to apply for college or trying to pay it off.

For the first time in three years, student loan repayments are about to resume after pausing at the start of the pandemic, and Tara created a guide to restarting here. The Biden administration plans to implement a new income-driven payment program that could lower monthly payments for millions of people. Tara has an FAQ for that, too.

And last week, the Biden administration pledged to try a new legal tactic to cancel student debt on a large scale, using a different law than the one on which its failed efforts were based. Here is the article our colleague Charlie Savage wrote about it.

We asked readers to send us their questions about paying for college and we’ve answered a selection of them below.

How can college fees be paid?! It’s hard. How can we let our 18 year old get into six figure debt? It feels irresponsible. – Janet Green, Burlington, Vt.

The most calming answer to this question is the answer Kevin McKinleyFinancial Planner in Eau Claire, Wisconsin: Think of this in parts.

If you can save half, a third, or even a quarter of the cost of college over the first 18 years of a child’s life, great. Then you can pay some of the rest using your current income while your kid is in college and the final part by borrowing. Ron has written about what he calls the McKinley Rule here and here.

Did you save a cent? Do not give up. If the cost is $100,000 for four years in a public school, the student can usually borrow up to $31,000 from the federal government. Working part time during the school year and full time during the summer can easily bring in another $20,000 over four years. Then the parent or parents can pick up the rest, by tightening the strap; day job borrow side job or a combination of those possibilities.

Starting at a community college is also a good option. Ron wrote about tactics for community college students here.

Do all these changes mean that actual financial aid for international students will be limited? – Anastasia Mikaelson, St. Petersburg, Russia

None of the provisions are expected to affect financial aid for students coming from outside the United States, which was already very limited.

“I doubt there will be any impact on international student admissions, since most colleges view them as revenue centers,” said Mark Kantrowitz, student aid expert and author of How to Appeal for More Financial Aid for College.

But it is wise to learn as much as possible about the college’s individual policy on international students, and to review it statistics on how many Have confessed in the past and ask if she offers them help. College websites often contain this information, as well as resources geared to international students, including eduPASS And Education USA.

Only eight colleges requiring blind admission (which do not take into account a potential student’s ability to pay) also cater to the full financial needs of international students. They are Amherst, Bowdoin, Dartmouth, Georgetown, Harvard, MIT, Princeton and Yale, Mr. Kantrowitz said.

I am the father of a young child. I’ve always thought 529 was the best way to help pay for my child’s college. Then I learned from a parent of a college student that having one reduces the chances of getting financial aid, so it’s best to save that money in a retirement account and not report it to schools. Another parent of a college student told me they had a 529 for their child, but didn’t tell the school about the financial aid increase. What are the implications of taking these two approaches: to gamble on financial assistance, or to be immoral? – ca reader

There are many misconceptions about how a college 529 savings plan affects a potential student’s eligibility for financial aid, but your initial hunch was correct.

These accounts—which are run by states and allow the money to grow tax-free and be withdrawn tax-free as long as the money is used to pay for qualified expenses—are usually the best way to save for a child’s higher education. And they have little impact on federal financial aid eligibility. In the end, income matters far more than savings when the federal government calculates your income aid package, which is based on the information inside your Free Application for Federal Student Aid, or FAFSA. (For falsifying information about the FAFSA, beyond the obvious ethical considerations, there are potential fines and jail time.)

But as with anything related to personal finance, it’s complex.

If the 529 is owned by the parent or dependent student, it is considered the parent’s parent. This means that only a small percentage, or up to 5.64 percent of the account value, will be counted when calculating your financial aid eligibility through the FAFSA. For example, if a parent saves $30,000, the assistance is only reduced by $1,692. That’s one thing, but it’s definitely not worth giving up on your savings strategy.

If the 529 account was owned by a grandparent or other relative, it is not included in the financial aid calculations. Once the money is withdrawn to pay for college, it is counted as non-taxable income reported in the annual FAFSA. Some good news: Grandparents’ withdrawals will not be reported on the upcoming financial aid form, released in December for the 2024-25 school year, according to Financial Aid and 529 Experts.

Then there is the issue of retirement accounts. Some financial experts suggest putting at least some of your college savings into a Roth IRA, which isn’t considered for financial aid purposes until you start withdrawing money. Once you do, withdrawals count as income — and that could hurt your eligibility for financial aid after two years. Mr. Kantrowitz, the student aid expert, said that if a student graduates within four years, distributions from a Roth IRA on or after January 1 of their sophomore year in college will not affect aid eligibility.

How much will it cost (for a four-year associate degree) each academic year to enroll full-time in 2023, plus books, course-based hardware/materials, on-campus meals, accommodation in a college-run dormitory or apartment, and health insurance coverage / College-sponsored medical costs and transportation to and from college from home four times a year – as a self-employed student with irregular income only at poverty level – regardless of race, etc.? Joel, Maryland

independent students In general, they qualify for more federal financial aid than their dependent counterparts, but obtaining such status isn’t as simple as moving out of your parents’ home or not having them claim you when they file their tax returns.

There are several qualifying factors, including being at least 24 years old; married; graduate student; or the presence of dependents.

Independent students can generally borrow more – up to $57,500 In total For undergraduates, instead of $31,000 for most dependents—they are likely to qualify for the maximum amount of Pell Grants.

But knowing the true cost will vary by institution, although most students end up paying less than the sticker price. The best way to get these estimates is to visit the college Net price calculator And run the numbers for yourself.

What assistance options (other than debt incurred loans) are there for those families who earn “too much” to qualify for financial aid, yet don’t earn enough to pay comfortably out of pocket? William, Dallas

We get the source of those terrifying quotes. Don’t believe the financial aid officials think you can pay the full price.

In fact, these administrators are very aware of what they refer to as your “feeling of need.” That’s why they offer something called merit aid, which, in theory at least, is about what the child has accomplished — not about the money the family has.

How much merit aid might you get? It depends, and as Ron has written over and over, it’s not always easy to predict. You can find hints of how schools are making it out, however, on so-called joint datasets published by colleges. Look at section H2A (this is the code for merit-based assistance) for how much schools give people who don’t qualify for need-based assistance — and what percentage of the time they give any discount at all.

I’m a rising high school student, and I want to know how your economics class and need for financial aid affects your odds of being accepted. – Quinn Patwardhan, Kensington, Maryland.

Schools can be blind, meaning they do not consider financial need when deciding whether or not to accept you. They can also be aware of need, which means they may turn you down if they don’t have enough help to make it on hand.

Colleges don’t always say on their websites that they need awareness. Ron writes here about how schools are communicating about these issues. both of them Muhlenberg College And Oberlin College They have an excellent (and humane) explanation about their operations.

Schools may also let you in but not offer a good aid package. In this case, you’ll need to see if you’re able and willing to use loans or some other strategy to bridge the gap between your bid for attendance and how much you can afford to pay.

Now that the Supreme Court has struck down race-conscious admissions programs, schools with large financial aid budgets may tilt the odds toward people who can’t afford the full price. A handful of schools, such as Berea College At Kentucky, students who have, in Berea’s words, “limited resources” are guaranteed to be accepted.

Is it worth considering moving out of state, even though it will cost more? – Kathy Delegiannis, Reston, VA.

Let’s start with the assumption that out-of-state schools will cost more. Some countries have reciprocity agreements with other states allowing out-of-state students to pay in-state rates at public colleges and universities.

Private colleges offer the merit aid we discussed above, and if you receive a lot of it, an out-of-state private school may cost less than an in-state public school. But public institutions can play the merit-aid game, too, especially for out-of-state applicants with grades and test scores above that institution’s average.

“There is an incentive for admissions and financial aid staff to spray aid on merit so that they can achieve the geographic diversity they want to achieve,” he said. Sherem Herndon Brownco-author ofThe Black Family Guide to College Admissions. “

Schools in the major athletic conferences often work hard on this. “ESPN is the greatest marketing tool for colleges out there,” said Mr. Herndon Brown. “But once they get that attention, they have to dangle the carrot in front of the parents.”

As for whether an out-of-state school is worth any extra money it costs, it depends. Could your child learn more or access a program that isn’t available near home? What kind of friends can your child make that might be the same or different in a meaningful way? Could a school’s remote reputation mean more provocation for hiring managers in a particular industry or for gatekeepers in some graduate schools?

The answers may be elusive, but it helps to ask specific questions at the beginning of the process.