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Parental Mistakes Can Be Costly

Many families suffer from self-imposed pressure and financial angst that often lead to costly mistakes and blown opportunities to send their children to college.

By 2018 the U.S. workforce is expected to be more diverse with Whites making up a decreased share. At the same time, the U.S. workforce will be shifting to service-providing industries dominated by health care and social assistance as well as professional, scientific and technical and educational services. It also is a time when college enrollment from 2009 to 2020 is expected to increase by 25 percent for Blacks and Asian/Pacific Islanders, according to the Department of Education.

But who is going to pay for their education?

For starters, many parents avoid the FASFA and other financial aid forms without realizing what they have sacrificed.

First-generation families that pay for everything in cash may not realize that cash is not really needed for college. Making matters worse is that, according to U.S. Census Bureau statistics, poverty is on the rise. In 2010, 15.1 percent of all persons lived in poverty, and poverty numbers are disproportionately higher among minority groups, as 27.4 percent of Blacks, 26.6 percent of Hispanics and 12.1 percent of Asians live in poverty, compared to 9.9 percent of non-Hispanic Whites. Annual poverty level thresholds for single-parent families with two children were $17,568 per year as compared to $22,113 for two-parent families.

Failing to complete a FAFSA makes little sense especially when families may qualify for maximum federal and possibly state financial awards under the automatic zero Expected Family Contribution (EFC) calculation. Parents who file a 1040A or a 1040EZ federal tax return, have combined wages or an adjusted gross income of $30,000 or less per year, receive any federal benefits such as temporary assistance for needy families (TANF), support for women, infants and children (WIC), social security benefits (SSI), food stamps or free/reduced programs automatically qualify for a zero expected family contribution. Having a tax service complete the long form 1040 tax return rather than the shorter forms 1040A or 1040EZ is another common mistake many parents may not be aware of.

Zero EFC provides students with up to $5,500 per year in Pell Grants, low 5 percent interest Perkins loans, and more in subsidized Stafford loans before any state or need-based financial support. The other benefit of the Stafford and Perkins loans is that they are not based on parental credit scores but on the student’s financial need.

Although the Department of Education recently announced that the FY 2009 national cohort default rate increased from 7 percent to 8.8 percent, the new Income Based Repayment (IBR) option makes repayments more affordable by capping monthly repayments based on income and family size.

What about needy parents who exceed the zero EFC thresholds? Their biggest mistake is failing to appeal a financial aid award and/or trying to figure out angles that might not work. Colleges should encourage parental appeals and explain the professional judgment process and basis for adjusting reportable data. On the other hand, parents may be doomed to failure, or place their child’s education at risk, by underreporting income that does not agree with the tax return. Students also may be eligible for up to $4,000 in additional Stafford loans if parents apply and are denied a federal parent PLUS loan.

Realizing that they now have up to $5,500 in Pell Grants and $5,500 in Stafford loans (in addition to $4,000 for a PLUS loan denial), parents can breathe a sigh of relief when considering that the average annual cost of a public two-year college is about $2,700 and well within their means.

During the summer, colleges also are trying to provide free on-site mentoring and remedial programs day and night.

Many colleges offer rolling admissions, work-study and co-op programs in which a student can gain experience and pay tuition costs simultaneously. Many employers also can provide educational assistance and bring the campus to the worksite to educate many employees at once at little or no cost.

Despite offers to guarantee future employment, only 22 percent of first time, full-time students seeking bachelor’s degrees from for-profit colleges graduated within six years as compared to a 55 percent graduation rate at public institutions, according to the Washington-based Education Trust. Although the Obama administration is taking steps to limit funding to and increase regulation of for-profit institutions, parents need to compare the cost and value of a two-year program at a community college, military program and  other low-cost options before borrowing more than they can afford.

The bottom line is that parents need to be better educated and creative about short and long-term strategies before their children head off to college. In turn, colleges need to actively provide cost benefit comparisons of their programs as compared to for-profit options. Parents also should be more creative in terms of mapping part-time to full-time options, loan forgiveness programs and scholarship options. D

Howard Freedman is a financial aid consultant and president of Financial Aid Consulting.

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