What's New With Paying for College (2021)
The Pandemic has taken a huge toll on college students. Thousands, particularly those who are lower-income, minority, first-generation college students, have had to shift to lower-cost programs or delay their education altogether. Community colleges saw enrollment down over 9% last year, compared to about 3% for total college enrollment. It was estimated that twenty-five percent of last year’s high school graduates delayed going to school because of Covid and related financial issues last fall. This year was looking better, but the Delta variant and potential vaccine/testing mandates has many worried about 2022.
"Half of the students who are not attending college or enrolling in a career and technical education program would have attended if they had received adequate financial aid, according to another recent report by the Horatio Alger Association.
Four in 10 students need more financial aid than they did before the pandemic, and 1 in 7 students who did not previously require aid need it now, the nonprofit organization found."
Bottom line, it’s all about the money.
(Note: you are allowed to view four Forbes articles per month without a subscription. There are three Forbes articles quoted in this article, but the most important information from them is summarized in the post, so you may want to hold off on clicking on the links.)
Federal Student Aid
Update 8/8/21: Department of Education extends student loan payment freeze one more (last) time until January. (NPR)
Beginning in March of 2020, all Federal student loans were put on forbearance at 0% interest, allowing all borrowers in repayment to skip payments without their loan balances growing.
Repayment of Federal students loans are scheduled to restart on October 1 when the temporary student loan forbearance ends. According to surveys of both borrowers and loan servicers, it is not clear if either group is ready to resume payments. Senators sent letters to student loan services to ascertain their preparedness to receive payments again. Many will need to staff-up in order to do so, but until they get final word from the Department of Education that payments will in fact resume on October 1, they are in a holding pattern. There is pressure on the current administration to extend the forbearance further. (Forbes)
The other big news is the new Federal loan interest rates, which were set July 1 for the 2021-22 borrowing year. Undergraduate loans disbursed during this upcoming year will carry a 3.73% interest rate, up from 2.75% last year. The origination fee of 1.059% is about the same.
FAFSA completion dropped again for this coming year. Over 100,000 fewer students filled out the FAFSA, following a drop of 81,000 the previous year. Indications are that it is mostly the lower income students for whom the completion rate has dropped.
How did your state do? Here are the top five states in terms of completion rates. Inside Higher Education
- Louisiana (73.7 percent)
- Tennessee (71.6 percent)
- Washington, D.C. (69.3 percent)
- Illinois (65.7 percent)
- New Jersey (64.3 percent)
But the Department of Education is relaxing some of its verification requirements (audit) this year for students potentially eligible for Federal grants. The proportion of applications audited this year will not exceed 18%, compared to a quarter or more in previous years. If a student doesn’t comply with the audit, they lose the opportunity to get loans, grants and scholarships. The process can be time consuming and daunting, especially for the 20% of Pell-eligible students whose families don’t earn enough to file tax returns. (Washington Post-subscription may be required)
Student Loan Forgiveness
Some headlines like this one from FORBES: “Student Loan Cancellation Will Top $90 Billion During The Covid-19 Pandemic,” can be a bit misleading. What is referred to here is mostly the value of the interest NOT accruing to student loans under the general forbearance, not the original student loan balances.
Students with total and permanent disabilities were given some relief during the pandemic. When a student first qualifies for a student loan discharge under this provision, they must provide income verification and other information to the DOE for three years, and loans could be reinstated if income is high enough or other criteria trigger this event. Failure to fill out the required paperwork triggered the vast majority of reinstatements. During Covid, this process was halted. This could potentially impact over 200,000 borrowers. And over 40,000 whose loans had been reinstated during Covid were refunded any payments. (DOE)
And once again, the low success rate of those seeking public service debt forgiveness hits the headlines. Adam Minsky, writing for Forbes, spelled it out. When people were first eligible to apply for forgiveness in 2017, 99% of the applications were rejected. Data for the latest year ending this past spring shows little improvement, with 98% rejected, and a huge backlog of applications in process.
To be eligible, you must make 120 qualifying payments. These include several of the income-based repayment plans (or the standard plan, but that would pay the debt in full in 120 months unless you switch at some point to an income-driven plan.) Graduated and Extended payment plans DO NOT qualify. Then you must work full time for a qualifying government or non-profit entity.
For specifics about all the types of student loan forgiveness, cancellation and discharge, it is best to start with the Studentaid.gov website.
Parent Plus Loans
These loans are relatively easy to get, but hard to get rid of. They are also really expensive at 6.28% plus a 4.228% origination fee. As with all forms of debt, those parents who have more assets can probably qualify for private debt at a lower cost, and it is lower income people who resort to using Parent Plus loans to help put a child through college.
There is only one Federal program available to Parent Plus borrowers to help out with payments. That is the Income Contingent Repayment plan that caps payments at 20% of disposable income and forgives amounts owed after twenty-five years of payments. As we read earlier, Public Service loan forgiveness might be an option, but the success rate of these is so low it is not something to count on. (MarketWatch)
For students considering attending a school in a state other than their home state, there are a few financial considerations that may not be so obvious. The most obvious is to recognize that the student may not qualify for in-state tuition or some state-specific scholarships, at least not at first. These may kick in after one year if the students establishes residency. One less obvious thing to consider would be the cost of living in that city, which will drive incidental costs and potentially housing costs. Another would be the minimum wage in that state, as many of the jobs the student would be eligible for while at school will only pay minimum wage. Finally, the cost of traveling to and from school needs to be included in the budget. (The Scholarship System.)
And finally, a quick word on private student loans. A federal court ruled in July that private loans are NOT considered to be qualified educational expenses under the US Bankruptcy code (as federal student loans ARE), and can therefore be discharged in bankruptcy. Of course, bankruptcy should be a last resort. Given today’s interest rates, refinancing private debt should be attempted first. (Fox Business)
There are three relevant NGPF On-Demand professional development opportunities, one hour each, on the subject of Paying for College:
If you want to be completely up-to-date and prepared to teach this subject, consider registering for the 10-hour NGPF Certification Class on the subject. Cohort #15 starts on 8/10.