Student Loans: Past and Present

Welcome to the 2024 college acceptance season, which has befuddled and elated students and their families. Normally, this is the time of year when I remind you that financial aid packages are not always what they seem to be. Families often confuse loans, which must be repaid with interest, and grants, which is essentially FREE money. This year, the problem is even more problematic due to the FAFSA fiasco.

If you have not followed the drama around FAFSA, here’s a quick synopsis. Because there had long been complaints about the Free Application for Federal Student Aid (“FAFSA”) form for federal financial aid, the government overhauled the whole thing. The promise was that applicants would be able to utilize a streamlined form and process for the 2024-25 school year. The NEW FAFSA was supposed to save time and help more families qualify for federal loans, but from the early days of the rollout, there has been widespread frustration and complaints.

The good news is that the initial technical issues that caused delayed applicant submissions have mostly been resolved. But there is now another problem: some colleges received incorrect information from the government. The Department of Education (DOE) acknowledged the problems in late March and provided daily updates to help families make FAFSA corrections and to navigate the process. The department notes that a whopping “30% of FAFSA forms are potentially affected” by known processing or data errors.”

OK, so where does this leave borrowers? Some families are in a holding pattern until they receive their financial packages. DOE expects that most of the problems should be resolved by the end of April. As a result, many colleges are pushing back their usual May 1 deadlines to allow applicants more time to make a final decision on which college they will attend.

During this period of time, I encourage families to have realistic conversations about the large financial investment that they are about to make. It is imperative that borrowers, their parents, or their grandparents avoid signing up for a plan that could effectively impoverish them if things go astray. What could possibly go wrong, you ask? Maybe the student won’t graduate, maybe the post-graduate job market will be lousy, or maybe the graduate will choose a profession with a low starting salary.

After the candid (and yes, difficult) discussions and armed with all of the financial offers in hand, it may be worth having the student contact the college to appeal a decision, especially if something has changed (think: job loss, illness) since the application was submitted.

With all of these hoops, are you wondering if a four-year degree is worth it? The answer is yes, with a caveat. The data show that college graduates have lower unemployment rates, earn more money over their careers and are able to build a larger net worth over their lifetimes. But if you borrow too much money, those advantages start to narrow.

One last note: the Biden Administration recently rolled out more plans to reduce debt on some outstanding federal student loans, subject to income limits. If the rules stand up to the expected legal actions, they will assist borrowers (and potentially cancel the debt) who:

• Owe more than they did at the start of repayment.?
• Are otherwise eligible for loan forgiveness through plans like Saving on a Valuable Education (SAVE) Plan, Public Service Loan Forgiveness, or other programs, but have not yet applied.
• Have had undergraduate debt for more than 20 years and?also those who have had graduate student debt for more than 25 years. ?
• Are experiencing hardship paying back their loans.
• Have enrolled in low-financial-value institutions or programs that failed accountability measures.