financial aid 101: update from state education assistance authority davidson college - ncseaa...
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Financial Aid 101:
Update from State Education Assistance Authority
Davidson College - NCSEAA Counselor Workshops
Fall 2013
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We know a lot about the benefits of higher education!
Not only is income higher, job security is also enhanced by education.
Student aid isgood public policy.
And college education brings much more than just jobs ...
For each of the Five Ways ED Pays ...College works.
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Not only is college worthwhile ...College costs do not have to be paid all at once!
There are four ways to pay for this investment• Saving in advance
• Paying from current income
• Borrowing – pay with future income
• Scholarships and Grants
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Observation on the Four Ways to Pay
It is less expensive to save than to borrow
• Those who do not save have to borrow more• Current income can cut borrowing costs as well• Some level of sacrifice – at some point – will have to be
made (sooner, now, or later)• Need-based grants and scholarships are designed to
provide the amount that the family and student cannot reasonably afford over time
Most families use a combination of all saving, borrowing and current income to pay their share of college expenses.
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Paying for College: Saving, Borrowing, or Current Income
Goal: $50,000 to help pay college expenses
Save Borrow Current IncomeMonthly Payments $268 $565 $1,042Interest Rate 4% 6.4% N/ANumber of Years Paid 12 10 4Total Payments $38,592 $67,800 $50,000
Interest Earned/Paid $11,408 ($17,854) $0
If you save for 18 years instead of 12, monthly amount is $157 and thetotal outlay is $33,912
Borrowing instead of saving costs almost $30,000!
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Saving for College - 529 Plans
Save and pay for qualified higher education expenses • Your assets grow free of federal and state income taxes
• Qualified withdrawals also free of federal & state income taxes
• Give up to $14,000 annually without gift tax (hint to grandparents!)
• Still have control of your money, even after you give it away, by changing beneficiary and/or investment choices
• Evaluate plans on web site savingforcollege.com
• Learn about North Carolina’s plan on CFNC.org
NC 529
$1 .23 Billion Saved
118,753 Accounts
Average account$10,324
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Paying from Current Income
• Student work– 12 hours a week during school at $7.25 per hour = $2,610– 40 hours a week in summer for 10 weeks = $2,900– pay over $5,000 of college costs after taxes
• Parental monthly allowance– for meals, personal expenses, and transportation – expenses already in the family budget and also in total college costs
• Monthly payment plans offered by the college– Divide total bill by 10 or 12– Make installment payments with no interest– Usually offer term life insurance on parent– Consider using a 529 account as a personal monthly payment plan!
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Borrowing Options – Federal Direct Student Loan Program
• Stafford Loans for undergraduate students– Current interest rate for 2013-14 is fixed at 3.86%– Each year’s rate will be fixed, based on 10-Year Treasury + 2.05%– Dependent student can borrow
• $5,500 freshman year; $6,500 sophomore year• $7,500 each for junior and senior years
– Nearly all students can borrow … Income-based repayment is available
– 2 “flavors” – subsidized and unsubsidized – who pays in-school interest?
• PLUS Loans for parents– Current interest rate is fixed 6.41% – Each year’s rate will be fixed, based on 10-Year Treasury + 4.6%– Borrow full cost of attendance minus other financial aid
Other Borrowing Options
You may want to explore alternatives to federal loans
“Alternative” or “private” education loans
• Check interest rates
• Check origination fees
• Check terms and conditions and compare with federal‒ Deferments and Forbearances‒ Death and Disability ‒ Repayment Options such as Income Based Repayment
Home equity loans and other loans
Be wary when looking at non-federal loans.15
What we constantly hear about college...
College costs too much, delivers too little [Orange County Register]
College Costs Out Of Control [Forbes]
America’s Trillion Dollar Student Loan Train Wreck [Sense on ¢ents]
Student Loan Debt: $1 Trillion and Counting [Forbes]
Student loan debt nearing $1 trillion threatens recovery [NY Daily News]
Real Questions:
– Lots of students with debts of $75,000? Really?
– Are students borrowing more or are more students borrowing? Or both?
– What are average debt levels and how are they changing?
– What is really happening regarding college costs and financial aid in North Carolina?
Student Loan Debt: National Context
Nationally, of all students who entered college in 2003-04...
– 43% have no federal Stafford Loan debt– 25% have debt under $10,000– 16% have debt between $10,000 and $20,000 – 16% have debt over $20,000
8% > $20,000 - $29,9998% > $30,000
2% > $50,000 1% > $75,000
1% 1%
5%
8%
16%
25%
43%
> 75,000$50-75,000$30-50,000$20-30,000$10-20,000$1 - 10,000No debt
Student Debt in North Carolina, 2010 Graduates
NC USA0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
53%
66%
Proportion of Graduates With Student Debt
NC USA$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$20,959
$25,250
Average Debt Level at Gradua-tion
Source: Project on Student Debt, Fall, 2011
Default rates for College Foundation loans are about 1/3 of the national average!
So, what should the headlines actually say?
• Student loans should be approached cautiously, but for the vast majority they provide access to higher education.
• College costs a lot, but it is worth it, and financial aid lowers the cost for those who need help.
• College Works!
Issue of borrowing for graduate school may be much more serious!
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The fourth way to pay
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
0
50
100
150
200
250
300
350
34 3843 52
6073
94
111
131145
170
230
319 320307
267
315304
Need Based State Grants Since 1996
Millions
Centralized State Grants
Education Lottery Scholarship (UNC + Community Colleges)
Community College Grant (Community Colleges)
UNC Need Based Grant (UNC)
NC Need Based Scholarship (Independent Colleges)
To apply, file FAFSA and list a participating college. Consideration is automatic.
Growth in NC FAFSA Filings
Academic Year FAFSAs Filed % Change
2005-2006 312,632 4.33%2006-2007 319,948 2.34%2007-2008 338,919 5.93%2008-2009 397,231 17.21%2009-2010 499,800 25.82%2010-2011 553,390 10.72%
2011-2012 581,302 5.04%2012-2013 592,789 1.97%
All NC resident undergraduate filers w/o prior degree
Who Applies for Financial Aid?Who applies for aid?
Distribution of Centralized State Grants by Income Dependent Students 2012-13
20%
31%30%
15%5%
<$20,000$20-39,999$40-59,999$60-79,999>$80,000
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Advise your students:
1. Pay attention to deadlines2. Consider the new IRS data match with FAFSA
– May pay to wait a couple of weeks after filing taxes to file FAFSA– But do not miss college deadlines!
3. “Net Price Calculators” can be helpful tools – Only as good as the data put into them
• Access all North Carolina colleges via www. CFNC.org
• Access out of state colleges via www.collegeboard.org
How to learn more about financial aid in North Carolina
“What order should I do all of this?”
1. Complete PROFILE if required by earliest deadline2. Apply for merit aid by appropriate deadlines3. File federal taxes as early as feasible in 2014 so you can get
accurate data and use IRS Data Retrieval Tool4. File FAFSA by earliest deadline of your colleges5. Notify colleges of any special conditions6. Hear from colleges and evaluate offers of aid7. Notify colleges of outside scholarships8. Apply for federal loans per directions of your colleges9. Apply for non-federal loans if preferred10. Do not forget federal tax benefits the next year
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PLEASE BE ALERT TO SCHOLARSHIP SCAMS!
Contact information
Questions and Comments?
Steven E. BrooksExecutive DirectorState Education Assistance AuthorityP.O. Box 14103Research Triangle Park, NC 27109
919.248.4642