Why College Students Should File a FAFSA Every Year

I always encourage students and parents to file a FAFSA each year even if the student is never awarded any grants or work study, because having a completed FAFSA and Student Aid Report is like having an insurance policy or a line of credit. Unless students and their parents have saved the full cash price of attending college before the student starts college, there’s always the possibility that a financial crisis will arise that will require a student loan. Over the years I have seen even well-off families struggle through all kinds of financial emergencies such as; natural disasters, divorce, serious illnesses, accidents, job losses, and the list goes on and on. Having a student aid award, even if it only contains loans, will allow the student to stay in school during a short term crisis and leaves one less thing for parents to worry about.

If you do find yourself in a financial crisis, but haven’t completed the FAFSA it is almost never too late to file (click the link below) but keep in mind that it can take up to several weeks to process before the student can expect to see an aid report. Additionally, some aid is awarded on a first come first served basis and the deadlines for state and institutional aid are usually in the spring or summer. If, after the FAFSA is filed, your family’s financial situation or income changes due to a job loss, marriage, divorce or separation, medical expenses etc. you should set up an appointment with a financial aid counselor at the student’s college to have a review or “judgment review” to see if the student’s aid may be increased in light of the family’s current financial situation.

To view the deadlines for each academic year, click HERE

A College Financing Dilemma

Even though this is a question from the parent of a college junior, I thought it was relevant enough to share with freshman parents and definitely something to remember as your child goes through college.


Q: My daughter has run out of money in her junior year. Should she take out a loan for her senior year or try to work more hours to earn more money? She really wanted to graduate debt free.

A: This is a tough question and will require a lot of evaluation and planning on our daughter’s part. If she wants to graduate without debt she can, but she will probably have to take two or three years to finish her “senior year” while she works at least full time. Before she makes her final decision though, she needs to evaluate the following:

1.     How much can she earn working full time?  Minimum wage in most parts of the country is still $7.25 per hour, which may or may not be enough for her to live on and also pay for school part time.

2.     If she already has a part time job and can become a full time employee with the same employer, will she get a raise or benefits package that will make it worth her while to switch to full time?

3.     If she can’t work full time with one employer, will she be able to work two part time jobs? Will they both offer steady, year-round employment?

4.     What will her full time job prospects be upon graduation? She will need to honestly evaluate how much she can expect to earn upon graduating by researching the recent starting salaries of other students with similar GPAs and experience, from her same college and degree program. From this information she can calculate if it will be worth it for her to take two or three years to graduate while missing out on those same years of full time earnings and benefits in her chosen field.

5.     If she’s a strong student in a proven lucrative major field of study, it may be better for her to take out a federal student loan for her final year and pay it off early upon finding her first job.

6.     She also needs to make sure that switching to part time status will not force her to take required course work out of sequence, or make her ineligible for any scholarships, grants, work-study, or insurance policies (health or auto) she now has.

Discussing Family Finances With Your College Student

When I was a child people didn’t really talk about finances or how much they earned. I never asked my parents what they earned because I knew that the subject was taboo and there was no point in asking a question to which there would be no answer. My only reliable gauge of whether or not they were having financial trouble was how often they argued about money, and how nasty the arguments got. In short, I knew nothing about my family’s finances except that the lack of money caused arguments and family-wide tension. If you are of my generation and are now sending your child to college you may have had a similar experiences growing up, and if your own child doesn’t know much about family finances you need to have a frank discussion with him before he starts college.

This discussion is important for two reasons. First it expresses to your child how much you have to work to provide for the family and second it helps him understand his piece of the family’s financial pie. When I talk to college parents each summer, I cover this topic briefly and when I do, the audience grows tense.  While I understand the desire to take care of the tuition and fees for your child so he can focus on academics instead of money, it doesn’t mean that your child should remain in the dark about where the money comes from and how it's used.  

1. Discuss the college financing puzzle with your child. It’s rare for families to be able to pay cash for tuition, fees, room, board, books, and spending money. Even students from families that have saved diligently still seek out scholarships, part time jobs, or maybe even loans. Families often find that while tuition and fees can be paid from a 529 plan, room and board needs to be paid off monthly through a payment plan, and grandparents end up sending some cash to cover books or spending money. Most families collect funds from a variety of sources and have to assemble the college financing puzzle a little differently each year. Make sure your student understands this puzzle and actively helps you build it.

2. Talk about how he can help. Part time or summer employment, scholarships, student loans, graduating in 4 years, living frugally while in college; all of these are ways that parents hope their children will help them afford college, but we don’t always clearly express these expectations to our children. I have numerous conversations with parents halfway through each year in which they explain that they assumed their child would find a part time job to help pay for spending money and books. Unfortunately, the child was unaware of this assumption and never bothered to find a job. Instead, he’s used an entire year’s worth of spending money in four months. If you expect your child to live within a set budget or bring home $80.00 per week to reimburse you for his meal plan, tell him. Be clear and give him exact numbers so he knows that not only will he need to find a job, he’ll need to find one where he can earn at least $80.00 per week after taxes.

3. Plan for family financial emergencies. Having worked with college parents for nine years I’ve seen a lot of families go through a lot of financial problems. While there are some sad but rare occasions when a parent uses funds from a PLUS loan for a personal shopping spree or a vacation, most of the time financial emergencies happen because of job loss, illness and medical bills, or divorce. Your child deserves to know what your plan is in case these situations arise and it’s beneficial for everyone to work out a strategy to try to keep your child in college. This may mean that your child switches to part time status, transfers to a college near home, or has to take out a loan. Keep in mind that the goal of earning a college degree doesn’t have to change, but the strategies used to achieve that goal may.

Top Five Things to Consider Before You Borrow Student or PLUS Loans

By this time of the year most new college freshmen and their parents have received their financial aid award letter or student aid report. If you’ve saved for college since your child’s birth, earn enough to pay cash for college expenses, or your college student won a number of scholarship, you probably don’t need to borrow money to help pay for college. But, if your child is among the approximately 2/3 of college students who DO borrow to pay for college there are five things you and your student MUST consider before you accept these loans.

1. Only borrow what is NEEDED. Some students only need to bridge a $1,000.00 gap between what they already have in the bank and what they will need to pay for college, but most students will receive an offer of much more than that in loans. Only borrow the minimum amount needed.
2. Always exhaust other sources of income and “free” money first. If your child qualified for federal work-study, they should work at least enough to earn what they qualified for. Even students who do not qualify for work-study can work part-time to help fund their education. Working only eight hours per week at minimum wage is enough to bridge a $1574.00 gap in funding over two, 16-week semesters. Students can also continue to apply for all possible scholarships because even a few small scholarships can make the difference between graduating debt free or not.
3. Do not borrow to pay for lifestyle expenses. I can’t tell you how many times I’ve seen students and parents borrowing thousands each year (currently at 4.66% to 7.21% interest or more) to pay for what are considered lifestyle expenses. These include any unnecessary expenses such as driving a car when other transportation is available, choosing a residence hall, apartment, or meal plan that costs more than the bare minimum, joining a Greek letter organization that the student can’t afford, and traveling for leisure or even study abroad that is not required for the student’s degree completion.
4. Avoid private student loans. Almost any financial aid office at any college will advise you to only borrow federal student loans, then if absolutely necessary, federal PLUS loans. Private loans are almost always a bad choice to finance a college education because the borrower does not have the various repayment options available from federal loans. If you reach the point where they are the only option, the student needs to seriously re-evaluate his or her choice of college and either take a gap year to earn more money, attend college part-time, or seek out a less expensive college. Chances are good that there is a less expensive alternative within commuting distance.
5. Use one of the many free, online student loan calculators to estimate future monthly payments. http://www.finaid.org/calculators/loanpayments.phtml  All loans will have to be paid back with interest, so students and parents can use these calculators to estimate what their payments will be and for how long. Pay close attention to the estimated salary needed to pay off the loan, and understand the total amount of interest paid on these loans. Students also need to be realistic when estimating their future salary. They can research average starting salaries at http://www.bls.gov/ooh/ , but keep in mind these are average salaries.

A Frequently Asked Question from College Parents

Even though this is a question from the parent of a college junior, I thought it was relevant enough to share with freshman parents and definitely something to remember as your child goes through college.

Q: My daughter has run out of money in her junior year. Should she take out a loan for her senior year or try to earn more money? She really wanted to graduate debt free.

A: This is a tough one and will require a lot of evaluation and planning on our daughter’s part. If she wants to graduate without debt she can, but she will probably have to take two or three years to finish her “senior year” while she works at least full time. Before she makes her final decision though, she needs to evaluate the following:

1.     How much can she earn working full time?  Minimum wage in most parts of the country is still $7.25 per hour, which may or may not be enough for her to live on and also pay for school part time.

2.     If she already has a part time job and can become a full time employee with the same employer, will she get a raise or benefits package that will make it worth her while to switch to full time?

3.     If she can’t work full time with one employer, will she be able to work two part time jobs? Will they both offer steady, year-round employment?

4.     What will her full time job prospects be upon graduation? She will need to honestly evaluate how much she can expect to earn upon graduating by researching the recent starting salaries of other students with similar GPAs and experience, from her same college and degree program. From this information she can calculate if it will be worth it for her to take two or three years to graduate while missing out on those same years of full time earnings and benefits in her chosen field.

5.     If she’s a strong student in a proven lucrative major field of study, it may be better for her to take out a federal student loan for her final year and pay it off early upon finding her first job.

6.     She also needs to make sure that switching to part time status will not force her to take required course work out of sequence, or make her ineligible for any scholarships, grants, work-study, or insurance policies she now has.

Student Loans - Use with Caution

Loans should be your child’s responsibility and only when absolutely necessary. It would be great if your child could graduate without any student loan debt, but sometimes life happens over the course of four years.  As parents, we all know that only one accident, lost job, or trip to the emergency room can crater even the most well planned college finance strategy. If your child has to take out a loan to finish his college education, it’s certainly not the end of the world.  And just because your child graduates with debt doesn’t mean that he will be sentenced to a lifetime of poverty. Every generation has had to start small and pay its dues. We did too, and we’re doing fine. You can always help your child pay off loans later if your family budget allows.

Contrary to sensational news coverage of students with six-figure debt, the current average amount of student loan debt for students who do take out loans is about $26,000.00. Considering the typically low interest rates of 3.4%-6.8% and usual 10-year payment period, students who graduate with that amount in loans will pay a very manageable $250.00 to $300.00 per month.

In fact, if you’ve been paying bills on the school’s monthly payment plan for the past four years, and your child has to borrow in the last year, just keep paying as usual during the final year and then pay the same amount toward the loans after graduation. This will greatly reduce the total interest paid and pay off the loan early. If you agreed to pay for a portion or all of your child’s college expenses, this can probably be considered part of that commitment as well.

I am a big fan of having the student take out a Federal loan first and then only resort to parent or PLUS loans under extreme circumstances. There are a few reasons for this. First of all this is your child’s education and he should be responsible for it. Just like you wouldn’t expect to attend classes and take tests for him you shouldn’t be expected to borrow money when other loans are available.

Secondly, if your child hasn’t established a credit record by his junior year, he needs to consider ways to do that. A federal student loan for a modest amount can establish a good credit history. And third, there’s absolutely nothing keeping you from helping him pay his loans after graduation. Many parents and grandparents help pay off college loans as birthday and holiday gifts and even more are paying off a portion of their child’s loans as a way to give an inheritance before it is gobbled up by long term care expenses.

Student loan calculators

Are wonderful tools that can give you and your child a realistic look at what borrowing various amounts will cost in the long run. Just insert hypothetical amounts to be borrowed and the terms to see what loans will cost. Some of these calculators even estimate a minimum salary to make these payments. A helpful tool when planning majors and estimating starting salaries. I like the one at http://www.bankrate.com .