Financial Fundamentals - Ch 8 Flashcards
Tuition and fees make up what % of the total college cost ?
Represent between 39 percent and 68 percent of the total cost for college.
the remaining is: Room and Board , Books and Supplies Transportation
What is FAFSA ?
Free Application for Federal Student Aid (FAFSA).
starts the Financial Aid Process.
-Determines eligibility for all types of financial aid: grants, work-study, and loans.
-Determines the Expected Family Contribution amount (EFC).
-Can start filing on October 1st of the prior year.
Students are able to file the FAFSA for the 2021–2022 academic year on October 1, 2020.
-When the FAFSA is filed in October, income is reported from a year earlier.
-This is referred to as the “prior-prior year” income because it is the income from two years before the college semester start date on the FAFSA.
-Students filing the FAFSA for 2021–2022 will use their 2019 income information (the most recent tax return filed prior to filling out the FAFSA; two years before the start of the 2021-2022 school year).
-Assets, however, are reported as of the FAFSA filing date
WHat is the EFC ?
Expected Family Contribution:
EFC is calculated based on the information provided in the FAFSA,
as a family’s income and assets are applied to a Federal Methodology, which determines the family’s financial strength and how much it can contribute towards education costs.
Once EFC is determined by using one of the 3 Federal Methodologies, the EFC is subtracted from the cost of attendance at a university, which can include living expenses.
The formula is:
+ Cost of Attendance
- Expected Family Contribution (EFC)
= Financial Need
What are the 3 formula’s used to determine the EFC ?
- Regular Formula: Income and Assets
- Simplified Method
- Automatically Assessed Formula
What is the Regular Formula method for determining the FEC ?
Considers a family’s income and assets.
This method is the formula that is used for most families.
The federal methodology considers the following: * Income * Assets * Dependency status * Household size * Number of children in college * Cost of supporting the family
The EFC is a combination of the parent’s expected contribution plus the student’s contribution.
What is the Simplified Method for determining the EFC ?
Does NOT consider the family’s assets
In order to qualify for the simplified formula for the 2021-2022 award year, both of the following must be met:
- The parents are either not required to file a federal income tax return, or filed a 2019 Form 1040 but did not file a Schedule 1;10 or anyone included in the parents’ household size received benefits during 2019 or 2020 from a designated means-tested federal benefit program (includes Medicaid, SSI, SNAP, free or reduced price school lunch program, TANF, and WIC); or the student’s parent is a dislocated worker.
- The total adjusted gross income of the parents is less than $50,000.
What its the Automatically Assessed Formula for determining the FEC ?
Automatically Assessed Formula The automatically assessed formula simply calculates the EFC at zero, which allows for the maximum
amount of student aid.
In order to qualify for this method for the 2021-2022 award year:
- Student or parents filed a 2019 Form 1040, but did not file a Schedule 1, or were not required to file a federal income tax return; or anyone included in the student’s or parents’ household size received benefits during 2019 or 2020 from a designated means-tested federal benefit program (includes Medicaid, SSI, SNAP, free or reduced price school lunch program, TANF, and WIC); or the student or parent is a dislocated worker.
- Student or parents’ adjusted gross income is $27,000 or less.
Name 3 types pf financial aid offered by colleges ?
Universities will prepare a financial aid package, which helps students satisfy their financial need.
Financial aid may consist :
- Grants (money that doesn’t have to be repaid)
- Loans
- Work-study programs (where the student can work on or off campus to help pay for education expenses)
When is the FAFSA available for filing ?
The FAFSA is available for filing on October 1st of the prior year.
What is the FAFSA Simplification Act of 2020 ?
makes numerous changes to the FAFSA beginning on July 1, 2023, for the 2023-2024 award year
New Formula for 2023-2024 Award Year:
+ Cost of Attendance
- Student Aid Index (SAI)
- Other Financial Assistance
______________________________________
= Financial Need
The cost of attendance is determined by the institution and includes:
EVERYTHING !
:tuition and fees, and an allowance for books, course materials, supplies and equipment, transportation, and miscellaneous personal
expenses,
along with an allowance for living expenses such as food and housing.
- Applicants who do NOT file a tax return or who are recipients of specified means-tested benefits — will only be required to answer demographic and benefit-related questions.
- Other applicants will answer the same basic questions along with asset-related questions, and will have income information transferred directly from the IRS
Name the 3 types for Federal Grants for college aid ?
Grants are money provided to students for postsecondary education that does NOT require repayment.
Grants are typically awarded based on financial need.
The federal government only awards grants for undergraduate studies.
The following grants are discussed in this chapter:
* Federal PELL Grant
* TEACH - Teacher Education Assistance for College & Higher Education Grant
* FEDERAL Supplemental Educational Opportunity (FSEOG) Grant
What is the “ Federal PELL “ grant college financial aid ?
-Need-based financial aid for students who have not earned an undergraduate degree or a professional degree.
- NEVER RUNS OUT< if you qualify you get it.
- Does NOT have to be repaid
-Pell Grants are based on an academic year, from July 1st to June 30th.
-Amount awarded to a student is dependent upon the family’s EFC, cost of attendance, and whether the student is attending full-time or part-time.
-paid directly to the school or the student
What is the Teacher Education Assistance for College and Higher Education (TEACH) Grant ?
Provides up to $4,000 per year for students who intend to TEACH in a public or private elementary, middle, or high school, or an educational service agency, that serves a community of low-income families.
-If student fails to meet the teaching requirements, the grant is converted to a Federal Direct Unsubsidized Stafford Loan, which must be repaid by the student. Then Recipients of the TEACH grant have a six-month grace period after the grant is converted to a Stafford Loan before repayment must begin. If a TEACH grant is converted to a Stafford Loan, interest accrues from the first date the funds were disbursed.
-The student must serve as a full-time teacher for a total of at least 4 academic years within eight calendar years after completing or withdrawing from the academic program for which the TEACH Grant was received.
What is the Federal Supplemental Educational Opportunity Grant (FSEOG) ?
Awarded to students with Exceptional financial need.
-Pell Grant recipients with the lowest EFC are considered first for a FSEOG.
-Can receive between $100 to $4,000 / year
- May run out of money and may NOT get
What is the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020 ?
A result of the COVID-19 pandemic in 2020,
the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020
- Provided for FSEO Emergency Grants up to the maximum Pell grant amount to assist undergraduate or graduate students with unexpected expenses due to a qualifying emergency.
- Not included in the gross income of the recipient and do not reduce the amount of qualified education expenses for purposes of the American Opportunity Tax Credit or Lifetime Learning Tax Credit
- Not required to repay the loan or return the grant if it is a result of a qualifying emergency as described above
What are the 3 types of Campus Based Financial aid provided at colleges ?
Campus-based aid is administered directly by the financial aid office of the university.
The 3 types of campus-based aid are
- Federal Supplementary Educational Opportunity Grant,
- Federal Work-Study
- Federal Perkins Loan Program
Name 4 different types of college loans for students and parents ?
Different typos of Loans :
-Perkins Loan
-Plus Loans
-Subsidized Stafford Loan
-UNSubsidized Stafford Loans
What are Stafford Loans ?
Student loans administered by the U.S. Department of Education.
STUDENT MUST PAY OFF
-Prior to July 1, 2010, there were two types of Stafford Loans: the Federal Family Education Loan (FFEL) and Direct Stafford Loan.
-Direct Loan program, the funds are provided by the federal
government, whereas under the FFEL, the funds were provided by a bank or other lender.
-Stafford Loan funds are paid directly to the school, which applies the loan proceeds to tuition, fees, room, and board. Any remaining amounts will be paid directly to the student.
What is a UNsubsidized college loan ?
-NOT needs-based,
-Borrower is responsible for interest from the time the funds are disbursed.
-Students may pay the interest expense as it is incurred or allow the interest to be added to the loan’s outstanding principal
What is a subsidized college loan ?
-NEEDS BASED
-Federal Government PAYS interest on the loan while the borrower is attending school & during the 6-month grace period after graduation before repayment begins.
- Responsible for the interest from the time the funds are disbursed.
-Students may pay the interest expense as it is incurred or allow the interest to be added to the loan’s outstanding principal.
What are the max limits for a Stafford Loan ?
MAX. limits that can be borrowed by a DEPENDENT student under the Stafford Loan program for a full academic year:
- 1st year students: $5,500 but no more than $3,500 of this amount can be in subsidized loans.
- 2nd year students: $6,500 but no more than $4,500 of this amount can be in subsidized loans.
- Beyond the 2nd year: $7,500 but no more than $5,500 of this amount can be in subsidized loans.
______________________________________________________________________
For undergraduate students who are INDEPENDENTS (not claimed as a dependent on parent’s tax return) and for dependent students whose parents did NOT qualify for a Parent Loan for Undergraduate Students (PLUS) Loan,
the following are maximum limits on the Stafford Loan program in a full academic year: - First year students: $9,500 but no more than $3,500 of this amount can be in subsidized loans.
- Second year students: $10,500 but no more than $4,500 of this amount can be in subsidized loans.
- Beyond the second year: $12,500 but no more than $5,500 of this amount can be in subsidized loans.
What is the max loan amount a Graduate or professional Degree student with a Stafford Loan ?
maximum limits on the amount that can be borrowed under the Stafford Loan program in a full academic year:
- Each Year: $20,500 in unsubsidized loans.
- Graduate students are no longer eligible for subsidized Stafford loans.
- Maximum amount of Stafford Loan debt a student can graduate with from graduate school is $138,500, which also includes amounts borrowed for undergraduate studies
What are the fees paid with Stafford Loans ?
Students pay 2 fees associated with Stafford Loans.
- Origination fee that ranges from 1.0-1.5 percent of the loan amount (depending on when the funds are disbursed), which is used to offset the cost of administering the loan.
- Annual interest rate. The interest rate for unsubsidized Stafford Loans varies depending on when the funds are disbursed
How many years do students have to repay a Stafford Loan ?
What are the 7 repayment methods for a Stafford Loan ?
Students generally have 10 to 25 years to repay a Stafford Loan.
The 7 Repayment methods for a Stafford Loan
- Standard Repayment
- Extended Repayment
- Graduated Repayment
- Income Based Repayment
- Income Contingent Repayment
- Pay As You Earn Repayment
- Revised Pay As You Earn Repayment
What is the Standard Repayment method for Stafford Loans ?
-Schedule will amortize the loan for up to a 10-year time period, with minimum monthly payments of at least $50.
-Pays the loan in the shortest amount of time.
What is the Extended Repayment method for Stafford Loans ?
Schedule allows borrowers with more than $30,000 outstanding in either FFEL Stafford Loans or Direct Stafford Loans, to repay the loans over a period of time not to exceed 25 years.
- Lower monthly payment,
- pay three times the amount of interest
What is the Graduated Repayment method for Stafford Loans ?
- Repay a Stafford Loan for up to 10 years.
-Start with make low payments, but the payments will increase every two years.
-Allows borrowers to increase their loan payments as their income increases. - Under the graduated repayment schedule, no monthly loan payment will be more than three times the lowest monthly loan payment.
What is the Income Based Repayment method for Stafford Loans?
-Schedule caps the monthly payment based on the borrower’s income and family size.
-To qualify for the IBR schedule, the amount of payment calculated using the IBR method must be less than the monthly payment under the standard repayment schedule over a 10-year term.
-
What college loans are avaialbe for the IBR schedule used in the Income Replacement Repayment of a Stafford Loan ?
- Stafford loans (FFEL or direct)
- PLUS loans made to graduate or professional students (PLUS loans made to parents are not eligible)
- Consolidation student loans
What are the advantages of the IBR Schedule used for repayment for Stafford Loans ?
- Monthly payment will be 10 percent of discretionary income (15 percent for borrowers with a loan balance prior to July 1, 2014) and cannot be more than required under the standard 10-year repayment plan.
- For subsidized loans, if the repayment amount calculated under the IBR schedule is less than the monthly interest that is due, the federal government will pay the remaining interest for up to three consecutive years from the date loan payments commence. Beyond the third year, any interest deficiencies will be added to the outstanding balance of the loan.
- If a borrower has been paying the IBR schedule for 20 years (25 years for borrowers with a loan balance prior to July 1, 2014), still has a balance due, and meets certain other requirements, the balance due will be canceled.
- If a borrower is making payments under the IBR schedule for 10 years, has Direct Stafford Loans, and has been working in public service for a qualifying employer for 10 years, the remaining balance due can be canceled.
- If a borrower has FFEL Stafford Loans, it is possible to convert the loans to a Direct Stafford Loan to take advantage of the 10 Year Public Service Loan Forgiveness Program. The borrower will still have to meet the 10-year payment requirement on a Direct Stafford Loan. Any outstanding loan amount forgiven may be subject to income taxation
What is the Income Contingent Repayment for paying off a Stafford Loan ?
The income contingent repayment (ICR) schedule is for Direct Stafford Loans, Direct Graduate PLUS Loans, Direct Consolidation Loans, and FFEL Consolidation Loans only. Parent Direct or FFEL PLUS.
- Loan borrowers are NOT eligible for the ICR repayment schedule unless the loans are consolidated to a Direct or FFEL Consolidation Loan.
The amount of payment under the ICR schedule is the lesser of:
* The amount required under a 12-year repayment schedule times an income percentage factor that varies based on annual income.
* 20 percent of the borrower’s monthly discretionary income
-If after 25 years, the loan has not been repaid, the outstanding balance will be canceled.
What is the Pay as earn ( PAYE) repayment plan for a Stafford Loan ?
Available if the borrower has a:
- High debt-to-income ratio
- Caps the monthly payment based on the borrower’s income and family size.
These loans are available to use the PAYE schedule:
* Direct Stafford loans
* Direct PLUS loans made to graduate or professional students (PLUS loans made to parents are not eligible)
* Direct and FFEL Consolidation loans (consolidated PLUS loans made to parents are not eligible)
Benefits:
* The monthly payment will be 10 percent of discretionary income and cannot be more than required under the standard 10-year repayment plan.
* For subsidized loans, if the repayment amount calculated under the PAYE schedule is less than the monthly interest that is due, the federal government will pay the remaining interest for up to three consecutive years from the date loan payments commence. Beyond the third year, any interest deficiencies will be added to the outstanding balance of the loan.
* If paying under the PAYE schedule for 20 years, still has a balance due, and meets certain other requirements, the balance due will be canceled.
* If payments under the PAYE schedule for 10 years, has Direct Stafford Loans, and has been working in public service for a qualifying employer for 10 years, the remaining balance due can be canceled. Any outstanding loan amount forgiven may be subject to income taxation.
What is the Revised pay as you Earn (REPAYE) repayment Plan for Stafford Loans ?
Repayment schedule will “ CAP the monthly payment “ based on the borrower’s income and family size.
The following loans are available to use the REPAYE schedule:
* Direct Stafford loans
* Direct PLUS loans made to graduate or professional students (PLUS loans made to parents are not eligible)
* Direct and FFEL Consolidation loans (consolidated PLUS loans made to parents are not eligible)
Benefits:
* Monthly payment will be 10 % of discretionary income.
* For subsidized loans, if the repayment amount calculated under the REPAYE schedule is less than the monthly interest that is due, the federal government will pay the remaining interest for up to three consecutive years from the date loan payments commence, and will pay half of the remaining interest beyond the three-year period.
* For unsubsidized loans, if the repayment amount calculated under the REPAYE schedule is less than the monthly interest that is due, the federal government will pay half of the remaining interest that is due, for all periods.
* If paying undergraduate loan payments under the REPAYE schedule for 20 years (25 years if any loans are graduate or professional loans), still has a balance due, a nd meets certain other requirements, the balance due will be canceled.
* If making payments under the REPAYE schedule for 10 years, has Direct Stafford Loans, and has been working in public service for a qualifying employer for 10 years, the remaining balance due can be canceled. Any outstanding loan amount forgiven may be subject to income taxation
What is the Income Sensitive Repayment for FEEL Stafford Loans ?
Repayment schedule will vary, based on the borrower’s income.
- As the borrower’s income increases (or decreases), the repayment amount will increase (or decrease).
-The repayment period is up to 10 years.
What is the Deferment or Forbearance of a Student Loan ?
- A time when payments are suspended but may or may not incur interest expense.
-Subsidized Stafford Loan - borrower will NOT be responsible for interest payments during the forbearance period.
-Unsubsidized Stafford Loans- the borrower is responsible for interest charges during forbearance period.
What is the Perkins Lon Program for college loans ?
-Loan program for undergraduate and graduate students with exceptional financial need.
- The Perkins Loan is a low interest rate loan (5%), which is offered through a university’s financial aid office.
- The university serves as the lender and the federal government provides the funds.
-Repayment begins after a 9-month grace period. The grace period begins once the student graduates, leaves school, or drops below half-time status
- No new Perkins loans are available after September 30, 2017.
What is the Parent PLUS Loan ?
- PARENT LOAN to pay for a “dependent’s” undergraduate expenses.
- Student must be attending at least 1/2 time, in an eligible school.
- NOT needs based.
- NO debt-to-income ratio limitations, and require only that the parents do not have bad credit.
-For parents that have NOT saved enough for the child’s education, their child is close in age to attending college, and the parents have sufficient cash flow to repay the loans.
-PLUS Loans are available as a Direct PLUS Loan from the U.S. Department of Education.
-The amount of a PLUS Loan a parent may borrow is the cost of attendance minus any other financial aid awards.
-School determines the amount of Loan to receive.
- Loan funds are disbursed in at least 2 equal payments and sent to the school and are used to pay tuition, fees, room and board.
- Remaining funds are paid directly to the parents or can be held by the school for future education expenses.
- Interest begins when first disbursement is paid.
- NO subsidized PLUS Loans and repayment begins either 60 days after the loan is fully disbursed or may be postponed until six months after the dependent student ceases to be enrolled on at least a half-time basis. The parents can elect either repayment method.
- Cost = interest expense + fee of about 4.3 percent for funds disbursed in 2019 and 2020 of the amount borrowed.
-Eligible for deferment or forbearance, however it continues to accrue interest that can be paid immediately or added to the outstanding principal of the loan.
What are PLUS Loans for Graduate and Professional Degree Students for college ?
Students seeking graduate and professional degrees.
-Based on the student’s credit history, although a parent may endorse (agree to make the loan payments if the student is unable) the loan if the student has an adverse credit history.
-NOT needs based
-Students must have applied for the max. Stafford Loan amount available for graduate students.
+ Cost of Attendance
- Other financial Aid
_____________________
= Amount of Loan
After a student leaves school or falls below half-time status, what are the available grace periods ?
Grace period depends on the type of loan:
-PLUS Loans - 60 days after final disbursement
-Stafford Loans (Direct and FFEL) - 6 months
-Federal Perkins Loans - 9 Months
What are College Consolidation Loans ?
-Consolidate ALL of a student’s outstanding loans into one payment.
-The interest rate for a consolidation loan is based on a weighted average of the interest rates of the loans being consolidated.
- NO application fee to consolidate federal student loans into a Direct Consolidation Loan.
-Eligible for consolidation if in the grace period or be in repayment.
-Loan begins within 60 days of the funds being disbursed and the repayment period is from 10 to 30 years.
The following loans are eligible for consolidation:
* Subsidized and unsubsidized Direct and FFEL Stafford Loans
* Federal Perkins Loans * Parent PLUS Loans
* Graduate PLUS Loans
Are the Standard Repayment, Graduated Repayment and Extend Repayment based on Income ?
NOT Based on Income
What repayment of college loans are based on Income ?
Revised Pay as You Earn (REPAYE)
Pay As You Earn (PAYE)
Income based Repayment ( IBR )
Income contingent Repayment ( ICR)
Are Student Loans ONE of the exceptions in bankruptcy ?
YES.
-Student loan debt is one of the exceptions in bankruptcy and is typically NOT a dischargeable debt.
-While it is possible for student loan debt to be discharged under an undue hardship exception, these exceptions are not often granted and the student loan payments must continue to be made
Do all student loans require a co-signer ?
NO Neither Perkins nor Stafford loans require a cosigner.
- Private student loans often require a parent to co-sign for the loan.
- From the lender’s perspective, a loan to a student is a high risk because students likely have no assets, no credit history and a very uncertain future income stream.
- When parents or grandparents co-sign a loan, they become responsible for repaying the loan if the student falls behind on their payments.
What are Financial Aid - Federal Work-Study Federal Work-Study (FWS) ?
Jobs on campus or off campus for undergraduate or graduate students to help students pay for their education expenses. -
-Eligible, students must complete the FAFSA and have financial need. -Universities will pay students in the FWS an hourly rate, not less than the minimum wage.
-Earnings in an FWS program cannot exceed the amount of a total FWS award, as described in the student’s financial aid package. -Income earned through FWS does not count as student income on the FAFSA and, therefore, does not reduce future financial aid
Name the 3 types of tax-deferred savings vehicles permitted by Congress
3 types of tax-deferred savings vehicles permitted by Congress are:
- Qualified Tuition Plans (Includes Prepaid Tuition & College Savings Plans)
- Coverdell Education Savings Accounts
- U.S. Government Savings Bonds
What is a prepaid tuition plan ?
States may sponsor a prepaid tuition plan that will allow a parent to purchase college credits today and use those credits when the child attends college.
- States typically require parents to reside in the state where they are purchasing prepaid tuition credits and then use those credits to attend a college that is part of the state university system.
- Only pay the cost of tuition, NOT room and board
- Only 10 states still offer prepaid tuition plans to new investors. Those states are: Florida, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Pennsylvania, Texas, Virginia, and Washington.
- credits are considered assets of the parent for financial aid purposes. As previously discussed, a smaller percentage of a parent’s income and assets are deemed available for education than the child’s.
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-Another type of prepaid tuition plan- Private College 529 Plan, allows parents to purchase prepaid tuition credits to nearly 300 private universities across the country. Parents purchase prepaid tuition credits that can be used to attend universities such as Stanford, Notre Dam
