5 Things You Should Know Before Accepting Federal Work-Study

Cliché: Work for a living.    
POCS Reality: Eligible students can earn their financial aid through the Federal Work-Study program.

 

5 Things You Should Know Before Accepting Federal Work-Study is a post I wrote for the Student Advisor Blog.

Read the whole post for details but here are the 5 key points about the Federal Work-Study (FWS) program:

  1. FWS award is a job on or off campus, usually for Federal minimum wage.
  2. After accepting the FWS award, students apply for a particular FWS job which may or may not be in their field of study and which may require an interview.
  3. FWS recipients receive a paycheck as they work and do not get the total award money up front to reduce the college bill.
  4. FWS earned money is taxable, although students are not penalized for FWS money earned on their next year’s FAFSA.
  5. FWS job ends when award amount is met. Any unearned money cannot be rolled over into next year’s award.

 POCSmom’s College Prep DIY Insight: If you’re a full-time student, the FWS financial aid award is a part-time job. Before accepting FWS, make sure you can balance your studies with time spent working. The best jobs are the most valuable way to spend some of your free time because they:

    • give you experience in your field of study
    • provide networking opportunities in your field of study
    • pay more than another opportunity

 When considering your schedule, plan for downtime and extra-curricular fun. You can pass on Federal Work-Study for one semester, adjust to campus life, and accept it the next.

Net Student Price

Cliché: Count the cost.    
POCS Reality: College costs continue to rise.

 

 How much will you pay out-of-pocket for college? No matter where you attend, you will likely pay more than current students based on your net price because college costs continue to skyrocket; but those higher costs are not mainly from tuition.

 According to the Center for College Affordability and Productivity’s Net Tuition and Net Price Trends in the United States 2000-2009 Report, net student tuition increased by $1,067 but net student price rose by $2,988 at 4-year schools. The Report’s conclusion is:

“While tuition tends to get most of the attention when it comes to public discussions of college costs, the $2,988 increase at the four-year level indicates that roughly two-thirds of the increase in total college costs originates from non-tuition sources. This suggests that perhaps more attention needs to be paid to cost control for these other expenses.”

 Two year schools’ net student tuition fell by $849 while net student price rose by $1,333.

 The Report defines the terms:

  • Published Tuition: the “sticker price” of college.
  • Net Student Tuition: how much students actually pay for tuition (that is, sticker price less grant and scholarship aid).
  • Net Student Price: how much students actually pay, including non-tuition expenses, after accounting for grant and scholarship aid.
  • College Net Tuition Revenue: how much tuition revenue colleges receive per student.

  Besides tuition, other college costs include college fees, books and supplies, room and board, transportation and personal expenses. There are also hidden costs such as borrowing costs if taking out loans, car purchase costs if buying a car. 

 Check out the Report’s Appendix A Alternative Methods of Calculating Net Tuition for an interesting description of some other organizations’ methodology including the College Board’s Trends in College Pricing.

 POCSmom’s College Prep DIY Insight: When you get your financial aid award letter, look for need-based grants and merit scholarships that reduce your college bill. Included student loans must be repaid and have borrowing costs from fees and interest charges that will increase your out-of-pocket college costs. Federal Work-Study (FWS) is a job where the student earns a paycheck.

 The FAFSA4caster is a tool to help families estimate their college costs although flaws may make the result inaccurate.

 Another tool, Net Price Calculators, found on each college website, also can distort college costs if they include financial aid loans and FWS awards; and merit awards are difficult to estimate. They also do not include hidden college costs.

 Let’s get the conversation started about cost control for non-tuition college expenses. Meanwhile, the Net Tuition and Net Price Trends in the United States 2000-2009 Report stays focused on out-of-pocket costs as the net student price.

Financial Aid Disclosure Form

Cliché: Know before you owe.    
POCS Reality: There is no standard college financial aid award letter so students and families can find it confusing and difficult to calculate and compare out-of-pocket college costs.

 

The Department of Education is taking on the issue of standardizing college financial aid award letters so students and families can compare them before deciding where students should attend.

The Problem

College cost comparisons are misleading now because colleges can include different types of financial aid as reducing the college bill when in fact some can increase college costs. According to this article in Boston.com:

The practices are troubling because families often use these aid letters to help determine which school to attend. The lack of clarity has also played a role in driving up the debt loads shouldered by graduates to record levels, federal officials say.

Background Info

There are 3 types of financial aid:

  1. Scholarships/grants
  2. Federal Loans
  3. Federal Work/Study (FWS) 

Scholarships/grants are free money that does not get paid back. Loans must be repaid and have borrowing costs including fees and interest. FWS is a job, usually on campus, that receives a paycheck for work performed but is capped at the award amount.

This is an old POCSmom soapbox issue. I speak about it in my seminars, write about it this blog, and my other blog, and even made a chart on my website to help students and families better calculate college costs. 

It’s O.K.for colleges to reduce their bill with free money scholarships and grants that do not get paid back. It’s not O.K. when they also reduce the college bill by the amount of student loans and/or Federal Work Study (FWS) awards. Loans are a way to help pay the college bill but they also can hugely increase the overall cost of college because of borrowing costs. 

FWS awards can’t pay a college bill which is due way before students work and get their first paycheck from their FWS job.

When colleges include financial aid loans and FWS awards as a way to reduce the college bill, it is confusing at best for students and families trying to calculate their out-of-pocket college costs.

 A Solution

The Department of Education with the CFPB (Consumer Financial Protection Bureau) is creating a model format for colleges to use to explain financial aid offers to students. This “Financial Aid Shopping Sheet” may include the loan types and amounts, monthly repayment info, and itemized college costs. The public is invited to rate proposed content and provide comments:

http://consumerfinance.gov/students/knowbeforeyouowe

POCSmom’s College Prep DIY Insight: Only a single standardized college financial aid award letter form will enable students and parents to accurately compare college costs if it contains:

  • all college expenses
  • info about strings attached that may cause loss of free scholarships/grants
  • info about the borrowing costs of loans
  • info about how a FWS job is obtained, expected hours worked, amount of paycheck, when paid

Prepaid 529 College Plans and Risks

Cliché: You get what you pay for.    
POCS Reality: Investments to help pay for college can be risky and impact financial aid eligibility. 

 

Investments can be risky- ask anyone on Wall Street or Main Street, but how much of a risk are prepaid 529 college savings plans?

The IRS describes a 529 plan, its 2 types, and advantages:

  • A plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training for a designated beneficiary, such as a child or grandchild.
  • There are two basic types: prepaid tuition plans and savings plans. And each state has its own plan. Each is somewhat unique. States are permitted to offer both types. A qualified education institution can only offer a prepaid tuition type 529 plan.
  • Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board. Contributions to a 529 plan, however, are not deductible.

For 529 plans in general, investment performance is down but how does this amplify the risk?

According to Larry M. Elkin, CPA, CFP®, President of Palisades Hudson Financial Group LLC and Palisades Hudson Asset Management, L.P:

Prepaid 529 plans across the country have promised more in tuition benefits than they have the funds to deliver. In some cases, taxpayers are obliged to take up the slack, while in others the colleges themselves may be required to offer discounts to make good on the promised benefits. In still other cases, however, parents and grandparents who thought they bought the right for their offspring to attend college at a prepaid rate are likely to find themselves stuck with a broken pledge and a tuition bill, with no better recourse than to ask state legislators to bail them out.

Here are 2 questions about 2 risks:

  1. Isn’t “bail” as in bailout now considered another 4-letter word? Only a few states pledged to make up the difference if the investment does not keep up with rising college tuition costs.
  2. What if your student doesn’t want to attend a participating college – one that accepts the prepaid credits? A refund is available but, depending on the plan, may be limited to the original contribution, not any gains.

POCSmom’s College Prep DIY Insight: 529 plans are included as an asset on the FAFSA (Free Application for Federal Student Aid) in determining federal financial aid eligibility:

Investments also include qualified educational benefits or education savings accounts (e.g., Coverdell savings accounts, 529 college savings plans and the refund value of 529 prepaid tuition plans). For a student who does not report parental information, the accounts owned by the student (and/or the student’s spouse) are reported as student investments in question 41. For a student who must report parental information, the accounts are reported as parental investments in question 89, including all accounts owned by the student and all accounts owned by the parents for any member of the household.

 Parents should carefully research options before investing to save for college. Prepaid College 529 plans impact college financial aid eligibility, tax advantages, and risks.

*POCSmom’s College Prep DIY Insight: 10 Financial Aid Forms

Cliché: True to form.      
POCS Reality: Colleges determine which financial aid applications they require to calculate financial aid awards.

 

There are billions of dollars in financial aid available for college from federal and state governments, college institutional funds, and outside scholarships. Awards are based on applications and colleges determine which forms they require. Here are 10 financial aid applications:

FAFSA (Free Application for Federal Student Aid) is a federal financial aid application form required by all colleges for federal financial aid including grants, loans, and work/study. In addition, some colleges use the FAFSA to award money from its own endowment funds and others require additional forms.

State financial aid may be available. Contact your state for info and an application about state-sponsored financial aid programs for state residents

Institution contact colleges on your list for additional institutional forms that the school may require before awarding money from its own endowment funds for financial aid.

CSS/Financial Aid PROFILE® is an additional form required by a few hundred colleges before they award money from their own endowment funds.

CSS Business/Farm Supplement is an additional form for business/farm owners required by many colleges before they award money from their own endowment funds.

CSS NonCustodial Profile is an additional form for divorced/separated families required by many colleges before they award money from their own endowment funds.

Outside Scholarships sponsored by businesses, employers, individuals, high schools, fraternal organizations and other private groups have their own application forms to determine award winners.

College Scholarships from a schools’ special endowment funds may be awarded in addition to a college’s financial aid programs. Some colleges use their admission application for their scholarship programs and others require additional forms.

Verification Worksheet is to be completed if a student’s FAFSA was selected for review by the college.

Appeal institutional forms may be required by the college from students seeking a reconsideration of their financial aid awards.

POCSmom’s College Prep DIY Insight: To maximize financial aid awards, submit all financial aid applications required by colleges and outside scholarships. If you believe the award is inadequate, appeal and include supporting documentation. Submit all applications before deadlines because, even if qualified, you can lose money if your application is rejected because it was submitted too late.

*POCSmom’s DIY Insight: College Admission Directors

Cliché: Seek and ye shall find.    
POCS Reality: Colleges recruit students but students make the final decision of whether or not to attend.   

What are college admission counselors looking for in an applicant? The 2011 Inside Higher Ed Survey of College and University Admissions Directors completed in early September, found that the answer is increasingly- money.

Recruitment strategies included providing financial aid to needy middle and low income students and recruiting more students who could afford to pay the full college bill. The importance of these methods varied according to the college source: public, private, and community colleges: 

                       Rating Importance of Admission Strategies

Admission Strategy

 

Community Colleges

Public colleges

Private colleges

Providing adequate student aid for low- and middle income students

66.4

28.0

39.9

Recruiting more full-pay students

34.4

25.0

34.3

“The actual survey sample included approximately 1,840 two- and four-year colleges and universities that enroll 5.00 or more students. A total of 462 senior admissions and enrollment management officers completed the survey by September 3, 2011.”

POCSmom’s DIY Insight: This is just another reason for students to carefully craft a college list to include financial safety schools and to select the college to attend after comparing financial aid awards from schools that offered admission.

*POCS: Parent Of a College Student

 

*POCSmom’s Insight: College Application & Early Decision

Cliché: Apply oneself.    
POCS Reality: There are different college application programs that impact chances for admission and financial aid, differently.          

 

How nice it would be to apply early, increase chances for admission, get accepted early, and have the whole college application process completed by January of the student’s senior year in high school. That’s the upside of many Early Decision programs. But what is the downside?

Early Decision (ED) is a binding admission program through which students apply early (often by November of the senior high school year) to only one school, their first choice college, and if accepted, agree to attend if the school offers adequate financial aid. Upon acceptance, any other applications, such as those submitted through regular or early action admission programs, must be withdrawn.

 Here are the downsides:

  •  Money: If colleges are only required to offer adequate financial aid under ED, and they know their school is the student’s #1 choice, they have no incentive to maximize financial aid offers to students. Worse, since all other applications are withdrawn, students do not have an opportunity to compare financial aid offers from other colleges offering admission and to ask their first choice school to match a greater award from its competitor.
  •  Admission Chances: Although the acceptance rate for ED applicants is higher at many colleges, at other schools the reverse is true. For those schools, ED applicants have an admission disadvantage:

 http://www.thecollegesolution.com/the-odds-of-applying-early-decision/

  • No updates: When great things continue to happen in late fall and winter, students may want to share the news with colleges. ED applicants lose their chance to update their application with info about their further senior year accomplishments.
  • No options: What 17-year-olds want at the beginning of their senior year, may not be what their 18-year-old selves want as they near high school graduation. Whether it is a change of the student’s heart or mind, doesn’t matter. ED takes away college choices. So when other students are deciding in April after attending Admitted Student Days hosted by different colleges, the ED student is left holding his November basket-the one containing his only college egg.

 POCSmom’s Insight: Carefully consider the advantages and disadvantages of various admission programs and your ability to pay for college. If applying early appeals to you, think about Early Action programs that are not binding and usually give students until spring to make their decision, if accepted.

*POCS: Parent Of a College Student

*POCSmom’s Insight: College Loans

Cliché: Pay back.  
POCS Reality: There are borrowing costs associated with education loans.    

 

More college graduates are struggling to repay their student loans:

http://sanfrancisco.cbslocal.com/2011/08/29/consumerwatch-more-college-grads-struggling-to-pay-student-loans/

Even after counting grants and scholarships, many families cannot afford to pay for college out-of-pocket, so they borrow. After applying for federal financial aid via the FAFSA (Free Application for Federal Student Aid), colleges may offer undergraduate students federal education loans that are regulated by the federal government. There are additional federal loans for graduate students (Grad PLUS) and for parents of undergraduate students (PLUS). Some families choose to borrow from private lenders that set their own interest rates and terms for repayment.

POCSmom’s insight: Do the math. There are borrowing costs such as origination fees and interest charges which will increase the cost of a college education. Estimate income potential upon graduation to calculate if borrowing is an affordable option and if so, what is the maximum borrowing amount that is affordable.

If borrowing, federal loans usually have more favorable terms than private loans. Federal loan features that private loans do not have include:

  • Limits to the annual amount and the aggregate amount students may borrow.
  • Forgiveness programs (all or a part of a federal loan may be wiped out and forgiven if meet qualifications).
  • Deferral and forbearance programs to postpone repayment.

The best college choice is the affordable school with the best chance for student educational and student/family financial success. It should have the programs, activities, and location the student wants and the costs the student/family can pay.

To fully enjoy the rewards of  a post-college future, it is necessary to plan wisely in the present.

*POCS: Parent Of a College Student

*POCSmom’s Insight: Paying For College 2011

Cliché: College costs.  
POCS Reality:  As college costs continue to rise, students and parents should know their costs and how to pay them.     

 

Financial services company Sallie Mae and global market research company Ipsos teamed up to find out How America Pays for College 2011:

https://www1.salliemae.com/about/news_info/research/how_america_pays_2011/

What they found was American families believe in the value of a college education as an investment in students’ future earning potential. Students and parents found ways to make a college degree more affordable despite high college costs and a slow economy.

Following the Money to Pay for College: Sources Shifted from 2008 to 2011 

More $ from Less $ From
Scholarships and grants Parents
Federal education loans Private education loans
**Cost saving measures Attending without considering cost

**Cost saving measures included eliminating colleges after considering cost, attending lower cost colleges including two-year community colleges, commuting and living at home, attending part-time, applying for financial aid, and filing for education tax credits.

POCSmom’s Insight: Add affordable schools in each category of your college list:

  • safety (student qualifications exceed college admission requirements)
  • target (student qualifications meet college admission requirements)
  • reach (student qualifications almost but not quite reach college admission requirements)

Decide where to attend after comparing financial aid awards, calculating your college costs, and figuring out how you will pay them. 

Here’s a chart to use to help you compare colleges offering admission along with financial aid awards:

http://www.pocsmom.com/POCS_COA.html

*POCS: Parent Of a College Student