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Confused by your college financial aid letter? It's not your fault.

Many of them are missing important information, use jargon or acronyms, and don't differentiate between scholarships and loans, according to a new report from think tank NewAmerica and uAspire, a nonprofit that advises students on the financial aid process.

The report, which looked at letters from 900 schools, showed 36% of award letters didn't state how much a student will actually have to pay.

Financial aid letters are usually sent to students in the spring to tell them what scholarships and grants they'll receive for the upcoming school year. But the confusion makes it difficult for families to financially prepare when they may have to choose a college before seeing a final bill.

"Students and families confront a detrimental lack of information and transparency when making one of the biggest financial decisions of their lives: paying for college," the researchers wrote.

Since there's no national standard, it's hard to compare offers from different schools.

When costs were calculated, the report found that 23 different formulas were used. For example, one college may include loans (money you have to pay back) in the calculation while another may not. And schools may or may not factor in things like housing, meals and books.

What might appear to be the cheaper school may actually end up costing more money.

To get a clearer picture of your options, try calculating the cost on your own. This online calculator designed by the Consumer Financial Protection Bureau might help.

Here are some terms you need to know before you start.

Pell Grant

A Pell Grant is federal money awarded to some low-income students, based on family income and other information listed on the Free Application for Federal Student Aid (FAFSA) form.

Pell Grants — and grants in general — do not need to be repaid. But you might not get the same award the following year. States and colleges may also offer separate grants to students.

Supplemental Educational Opportunity Grant (SEOG)

The SEOG is another type of grant awarded by the federal government to students from low-income families. Like a Pell Grant, you do not have to pay back the SEOG, and you must submit the FAFSA form to be eligible.

Federal Work-Study

If work-study money is listed in the financial aid award, a student can get a part-time job on campus and be paid up to the amount awarded. You don't have to pay this money back, but you do have to find the job and work enough hours to be paid the full amount.

Direct Unsubsidized Loan

This is a loan from the federal government. Usually, you must start repaying it six months after leaving school. (If it's unsubsidized, interest will start accruing immediately. If it's subsidized, the government will pay the interest accrued while you were in school.)

The report found 136 different variations of the name of a Direct Loan were used among letters from 455 colleges that included them. And 24 of the variations did not use the word "loan." They are also known as William D. Ford Direct Loans.

Parent PLUS Loan

PLUS loans are also federal loans, but they are taken out in a parent's name. While a financial aid letter may include them in the package, parents must apply for them separately and could be denied if they have an adverse credit history.

Expected Family Contribution

If this is listed in your letter, it is usually calculated by the college using information from the FAFSA. It's the amount the college expects your family to be able to pay for the upcoming year. But it may not be what you actually owe, depending on whether the college offers enough aid to fill in the gap. You could end up owing more — or less.

Source CNNMoney

Women college graduates hold nearly two-thirds of the U.S.'s $1.5 trillion outstanding student debt (Source: Bloomberg)

As we come to the end of another academic year, college seniors across the country don their caps and gowns to walk down the aisle to receive their degree celebrating years of effort while representing their transition from a student into the national workforce. But that “sheepskin” comes at a cost; a financial burden that some may take an entire lifetime to recover from.

In their report “Trends in Student Aid 2016,” the College Board informs us that “In 2014-15, the 61% of bachelor’s degree recipients from public and private nonprofit institutions who borrowed graduated with an average of $28,100 in debt.”

As the graduation parties fade into distant memories the prospects for these graduates securing good paying jobs may not meet their expectations or cover their ability to repay these student loans.

Judith Scott-Clayton writing for Brookings in “The looming student loan default crisis is worse than we thought” informs us that:

“Trends for the 1996 entry cohort show that cumulative default rates continue to rise between 12 and 20 years after initial entry. Applying these trends to the 2004 entry cohort suggests that nearly 40 percent may default on their student loans by 2023.”

A CBS News article paints a bleak picture quoting Elise Gould, senior economist at the Economic Policy Institute. It reports that more than 1-in-10 college graduates are “underemployed,” working in jobs that don’t use their skills.

“There's an increase in the number of young college grads who are taking jobs that don't require a college degree, so it's taking them longer to get them really started on their career track," Gould said. Underemployment "has improved, but it's still higher than before the recession."

CNBC further informs us that “Graduates of the Class of 2018 are heading into a job market with the lowest unemployment in 17 years and higher starting salaries. However, employers plan to hire fewer new grads than in recent years.” The reporter further states “As a result, nearly four in 10 recent graduates don't think it's likely they'll be able to pay off their student loan debt within 10 years according to a separate report by NerdWallet.”

“Over the last decade, college loan balances in the U.S. have jumped to an all-time high of $1.4 trillion,” CNBC reports. Given the 40 percent default rate predicted by Brookings, that indicates a $560 billion default in student loans facing current college students.

Andy Puzder writing in the Hill states that:

“Congress should act before we experience a collapse in the student debt market similar to the collapse in the subprime mortgage market that led to the recession after the 2008 financial crisis.”

These issues have also attracted the attention of the General Accountability Office (GAO). They have identified one of their key issues under post-secondary education access affordability as:

“Strengthening accountability for student outcomes while maintaining access. The federal government provides financial assistance to students attending thousands of accredited institutions each year. However, relatively little is known about the quality of education being provided by these schools.”

GAO found in their December 2014 report, “Education Should Strengthen Oversight of Schools and Accreditors”, “To access federal student aid — which totaled more than $136 billion in fiscal year 2013 — schools must be accredited to ensure they offer a quality education.” GAO found that from October 2009 through March 2014 “…accreditors — independent agencies recognized by the Department of Education (Education) — sanctioned about 8 percent of schools for not meeting accreditor standards. They terminated accreditation for about 1 percent of accredited schools, thereby ending the schools’ access to federal student aid funds.” Further, GAO found that “…accreditors were more likely to have sanctioned schools with weaker financial characteristics than those with stronger ones.”

Given this as an incentive we can further question the ease with which the statistics can be manipulated to disguise the actual default rate from a schools graduated population. In an April 2018 report on federal student loans, the GAO concludes “…While postponing payments through forbearance may help struggling borrowers avoid default in the near term, it increases borrowers’ ultimate repayment costs and does not necessarily put borrowers on a path to repaying their loans. Moreover, including borrowers who spend 18 months or more in forbearance in the CDR (Cohort Default Rate) calculation reduces the CDR’s ability to hold schools accountable for high default rates since long periods of forbearance appear to delay —  not prevent — default for some borrowers.”

Consistent with Andy Puzder’s warning, the GAO also calls for congressional action to improve the measures utilized to gain a proper understanding of the student debt crisis before us and take action before all that can be done is “…delay — not prevent — default…”

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What does student loan debt have to do with retirement? A lot. Student loan debt is eating into Americans’ 401(k)s, threatening retirement security. “For young people, it’s a growing problem,” says Craig Copeland, senior research associate at the Employee Benefit Research Institute.

401(k) workplace retirement plan balances are lower for those with student loan debt than for those without it, Copeland found in new research he unveiled at an EBRI policy forum last week. Families ages 45 to 54 without student loans have a median 401(k) balance of $80,000 versus just $46,000 for those with student loans. Families with heads younger than 35 without student loans have a median $11,000 401(k) balance versus $8,000 balance for those with student loans.

Student loan debt is a problem across all ages and all income levels. In 2016, 26% of families had outstanding student loans, up from 12% in 2001. But that overall number masks what’s going on for young people, Copeland says. For families with heads under 35, it’s pushing towards half that have student loan debt.

“It’s impacting their ability to save for retirement,” says Fidelity Investments’ head of financial wellness Cindy Silva. Fidelity initiated a program in January 2016 to help customer service associates pay off up to $2,000 of student loan debt a year (with a $10,000 lifetime max), and 8,400 employees have taken advantage of it so far. They’re mostly younger employees but some older ones too (10 in the 55-plus group). Silva says the program has helped with attrition, and she hopes it will help boost 401(k) balances too. The reps with student loan debt defer 6% of salary into their 401(k), while those without student loan debt defer 7% of salary. “As soon as we can get them out of debt, that will help with retirement savings,” she says.

Kate Winget, chief sales officer at Gradfi, a fintech company that piloted student loan repayment programs to 100 employers in 2016, is now working with 350 companies across the U.S., including PricewaterhouseCoopers and Peloton. “The workforce is asking for it,” she says. Employers can customize the programs to focus on retention or key hires, and they can be limited to just the worker’s loans or opened up to pay down debt for anyone in your household--to cover spouse’s loans and parent PLUS loans.

One limitation to student loan repayment programs is that the employer payments count as taxable income to the employees. Rep. Rodney Davis (R-Ill.) has introduced a bill in Congress that would let employers make up to a $5,250-per-employee tax-free contribution toward their workers’ student loans.

What about measures to reduce the reliance on student loans from the start? Silva says Fidelity is working on an advisory platform that will help employees with students nearing college age to choose the right college from a financial and employment perspective. “Boston College isn’t going to give you ROI if you’re going to be a kindergarten teacher,” she says. And Gradfi’s Winget says employer funding of 529 college savings plans will be the future.

For now, if you’ve got student loan debt, consider its impact on your 401(k). Make it a priority to save enough in your 401(k) to grab any employer-match money. “It becomes a choice, whether you’re going to contribute to your retirement account,” Copeland says.

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This goes for public colleges and private nonprofit institutions as well as for-profit schools

Even though for-profit colleges get a bad rap for being predatory and leaving students saddled with debt but no degree, a significant number of private nonprofit and public colleges have the same issues.

For example, a recent analysis examined 781 colleges where most students borrow and few can repay their loans. While the analysis found that 73% of those schools were for-profit colleges, it also identified 209 private nonprofit and public colleges with low completion rates and heavy borrowing.

So, how can prospective students identify problematic colleges that will likely saddle them with debt and where few of their fellow students will graduate? As a policy analyst who examines issues of quality and equity in higher education, I suggest four questions students should ask when exploring which college to attend.

1. How selective is the college?

Many higher education institutions have a mission to educate as many students as possible — especially public and state systems — and thus have high acceptance rates. But other schools have high acceptance rates because they are motivated by the need for revenue.

For example, many private nonprofits with small endowments depend heavily on tuition. These colleges aggressively seek to bring more students through the doorwho can pay tuition, whether out of pocket or through loans, even though many of these students are not “college ready,” and need to take remedial courses and struggle academically.

If the college in question is nonselective, the next three questions take on added importance.

2. Do most students borrow?

If a school is likely to leave you with a four-year debt of higher than US$37,000 – the national average – the school might be too expensive or have limited aid to offer. Or it might aggressively push students to take loans.

The majority of students borrow some amount to finance their education. But depending on annual tuition and limited forms of other aid, colleges can hamstring students with sizable debt after graduation that then has a drag effect.

3. Do students finish?

If a given school’s six-year graduation rate — a national benchmark for college completion — trails the national average of 595 for four-year colleges, there could be trouble.

For many students, failing to complete college in six years means not only carrying debt but carrying debt without receiving a degree or credential, which means decreased job prospects. And for dropout students who seek to continue their education elsewhere, transferring credits can be a challenge.

4. How much will I earn?

While on average graduates will be $37,000 in debt, at some schools they can expect to earn relatively low annual salaries — that is, somewhere between $30,000 and $40,000 — 10 years from when they first enrolled at their college. Of course, earnings will vary across professions and graduates. But low earnings make it challenging for students to pay off their debt. A general rule of thumb is that a student’s total debt should not exceed anticipated their annual salary. Thus, students should make the quick calculation of whether anticipated jobs and earnings 10 years after graduation are worth the anticipated debt.

Answers to these four questions are publicly available online through the U.S. Department of Education’s College Scorecard.

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COLUMBIA - Benjamin Franklin once wrote, "An investment in knowledge pays the best interest." But students' investments in their college degrees are costing them interest - and a lot of it.

In the first quarter of 2018, US student loan debt hit $1.5 trillion—an all-time high. That's more than $4,000 for every person in the U.S.

The average college student graduating this spring will owe between $30,000 and $40,000.

According to Nick Prewett, director of the MU Office of Financial Aid, MU graduates owe less in federal loans ($21,884) than the national average ($28,973). The monthly student loan payment for an MU graduate with $22,000 in debt factors to about $226 per month.

Prewett said MU issues between $170 million and $180 million in loans to students each year, but the figure has been increasing.

"As state funding and support has declined, there's an increased burden on students," Prewett said. "We've gradually seen our student loan volume on campus increase over the past few years."

Most students have a six-month grace period after graduation before they have to start paying on their student loans.

Prewett said MU cautions students to take out no more in loans than they expect to make their first year out of school.

"We tell students not to borrow more than they're going to earn the first year after they graduate," Prewett said. "The average student here has a starting salary in the $40,000 range."

Nationally, one in six graduates has student loan debt that exceeds their income.

To manage student loan debt, the MU Office of Financial Aid encourages students to complete exit counseling at studentloans.gov to become familiar with the terms of their loans and their repayment options.

Enrolling in auto-pay is another way to take some of the hassle out of debt repayment. Loan payments are drawn automatically from the student's bank account, and they can receive a quarter-percent discount on their interest rate.

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Author: Paul Gerke | Click Here to Read Full Article