Archive for the 'Student Loans' Category

Five reasons why the aid act may be bad for students.

There has been a pause in Washington as all eyes focus in on the healthcare debate. But very soon the Senate will be taking up an important measure related to college students and financial aid that was previously approved by the House.

TheMiddleClass.org offers the following summary of that bill, The Student Aid and Fiscal Responsibility Act of 2009:

The Student Aid and Fiscal Responsibility Act terminates the Federal Family Education Loan program, which provides subsidies and guarantees to private lenders that make student loans. Instead, the federal government would issue student loans directly to borrowers. Ending the subsidization program would save the government $87 billion over ten years. The Act ensures that interest rates on student loans remain affordable. Additionally, the legislation increases the maximum Pell Grant, a need-based grant designed for lower-income students, from $5,350 in 2009 to $5,550 in 2010 and $6,900 in 2019.

The Student Aid and Fiscal Responsibility Act includes funds for programs to encourage completion of college and subsequent employment, particularly for students from underrepresented backgrounds; for Historically Black Colleges and other minority-serving institutions; for early-childhood education; and for school modernization and repair. The bill also provides funds for improving the community college system. The legislation simplifies the Free Application for Federal Student Aid (FAFSA), which determines eligibility for student aid.

Such a summary has most folks taking the stance that the recent approval of the legislation by Congress is a massive step forward for students and families. As but one example, the Seattle Times offered extremely high praise, noting that “Congress’ overhaul of the college student-loan system offers welcome relief to students at risk of drowning in debt.”

College students backing SAFRA recently put together a YouTube video:

Certainly the legislation borders on the historic. Terry Hartle, senior vice president at the American Council on Education, indicated that the legislation “is the biggest change in federal loans for higher education since 1965, when the original program was created.”

But those following the issue realize that support for the legislation is falling along party lines: Democrats in support, Republicans in opposition. Therefore, one can quickly surmise that the new program conflicts with certain conservative principles.

Perhaps even more importantly, as the legislation becomes clearer many others, irrespective of party affiliation, have begun questioning this massive change. Indeed, after listening to those critics, we too have begun to wonder aloud.

Is the legislation really a positive step for students and their families?

Issue One – Categorizing the Middle Man as a Corporate Monster

One highly touted aspect of the legislation is the move to make the federal government the direct lender to students. In taking this step, the goal is to remove the so-called ‘middlemen’ from the loan process.

Banks are certainly pushing back, after all college loans have served two purposes. The interest on the initial loan is but one positive element for banks. A second and perhaps larger segment has to be the opportunity to create new customers.

But while most equate banks and profits with the middlemen term, the fact is there are many local agencies handling the loan process for students. Most are nonprofits, working to ensure that the loan process, from borrowing through repayment, goes smoothly.

The legislation as currently enacted eliminates all agencies handling these funds including some highly-valued nonprofits. For example, one such nonprofit, the New Hampshire Higher Education Assistance Foundation (NHHEA), works with nearly 30,000 New Hampshire students and parents each year, offering free college planning and information related to financial literacy and financial aid.

But under the proposal, intuitions such as NHHEAF would also be eliminated.

Issue Two – A Potential Increase in Loan Defaults

As noted previously, these local nonprofit centers focus on educating students in all financial matters. They not only offer financial literacy programs for student borrowers and financial aid preparation for students and their families, they also offer programs that promote early college awareness.

Such training goes a long way in terms of developing greater student understanding of the loan process. As but one example again, NHHEAF can claim one of the lowest default rates in the nation.

Needless to say, this loss of local services could well mean far more in the way of potential student loan defaults.

Issue Three – No Savings for Students or Families

Clearly there is major support for “eliminating subsidies to lenders,” particularly after what has transpired over the last year in the financial world and the role banks have played in it. But upon hearing of the elimination of these subsidies, the public immediately assumes the result will be a reduction in program expenses.

It appears instead of passing along savings to students, the current proposal may well cost students more. According to the Chronicle of Higher Education, the “federal government isn’t providing any breaks to the students” and ultimately will be making more off the program than lenders ever could.”

It may well be that the money raised will be doled out in the form of increased Pell Grants, but those grants will essentially be funded from students paying off other loans, not necessarily from increased support from the federal government.

In addition, those schools currently utilizing other loan programs will need to invest staff, time and money to change systems and processes. This would need to take place at the same time that schools have axed budgets to the bare bones.

The costs associated with implementing the program will likely be passed on to students through increased tuition and student fees.

Issue Four – Handling the Increased Demand

The legislation by Congress assumes that the government can effectively and efficiently step up and run the new program. According to Martha Holler, a spokesperson for Sallie Mae, in order to implement the proposal, “about 4,500 schools would have to convert lending systems. It’s not like putting a different disk in their PC; the whole system has to be reworked.”

The result, “The U.S. Department of Education will be tasked with converting an average of nearly 500 schools a month over the course of a nine month period,” notes Tara Payne, Vice-President of Corporate Communications for NHHEAF. “Since the Direct Loan program’s inception in 1993, roughly 1,600 schools have been converted over a 16 year time-frame.”

Issue Five – Increasing the National Debt

According to the Office of Management and Budget (OMB), under budget proposals that include the switch to 100-percent Direct Lending, the debt held in the Government’s various Direct Loan accounts is expected to rise from $632 billion in FY 2009 to $1.58 Trillion in FY 2019, an increase of more than $900 billion. Therefore, nationalizing the direct loan program will add substantially to the national debt over the next decade.

This means that those who benefit from the loans will actually pay twice, once when paying off the original loan and a second time when he or she pays the taxes necessary to eliminate the ever increasing national debt.

Of course some insist that the basis of the proposal is to deal with the larger budget issues, that any savings created by program changes will be used to plug budget gaps instead of providing additional funds for higher education.

Questioning the Change

These five issues have us and others questioning the government take-over of a public-private program that has seemingly supported students and schools, especially those who have borrowed judiciously in the past.

There is an important phrase every student should come to know and understand well before heading off to the world of work:

Conflict of Interest

According to Wikipedia, the term has the following meaning or connotation:

A conflict of interest occurs when an individual or organization (such as a policeman, lawyer, insurance adjuster, politician, engineer, executive, director of a corporation, medical research scientist, physician, writer, editor, or any other entrusted individual or organization) has an interest that might compromise their actions. The presence of a conflict of interest is independent from the execution of impropriety.

For students considering working in the public sector, a thorough understanding of the term ‘conflict of interest’ is essential. And a great example was on display in recent days involving Emerson College in downtown Boston.

The Basic Issue

The school recently agreed to pay a settlement totaling $780,000 to both current and former students for steering those individuals towards a specific preferred lender. Though the maximum sum per student is limited to $833, about four thousand students will receive some money because of actions taken by the school.

At issue was the school’s practice of listing preferred lenders for students. In essence the school steered students towards a group of lenders, insinuating that the companies listed were providing students the best loan options.

The three entities were Education Finance Partners Inc., Citizens Bank and JP Morgan Chase & Co. During the period of time the school steered students towards these companies, they were not the least expensive lenders.

Employee Transgressions

So, one might ask, why did Emerson steer students to these companies. The answer may well have been the fact that each firm provided gifts to the people who worked in the Emerson financial aid office.

It seems that both Citizens Bank and Chase handed out free vacations, meals, and event tickets to folks who worked in the aid office. In addition, there apparently was a $4,500 kickback from Education Finance Partners Inc.

In what has to be a real sore spot for those thinking that colleges would conduct themselves with higher ethical standards, when students filled out the online Stafford Loan application they were given but two choices, Chase or Citizen’s. If students submitted paper applications that sought a loan from a non-preferred lender, the school reportedly “sent back letters discouraging them from using those lenders.”

In fact, the $780K figure was an agreed upon settlement to eliminate possible exposure to legal charges.

Lessons Learned

The school itself has not admitted to any wrongdoing (check that Wikipedia definition) though Daniel Pinch, the former director of Emerson’s financial aid office, was fired in 2007 for accepting gifts.

Sadly, Emerson is the 28th US school to offer a settlement to students. Unfortunately, employees at far too many schools apparently do not understand the meaning of the term, conflict of interest. Otherwise the practice would not have been so widespread.

But in an effort to further clear up potential such issues in the future, Emerson will no longer designate any institution as a preferred lender.

Ultimately, in prior articles, we have talked about the importance of being able to learn from the mistakes of others so as not to make them ourselves. Emerson’s situation is specifically one that offers a great lesson for everyone.

A sixfold expansion of the current Perkins Loan Program forms the centerpiece of President Obama’s goal for making college more affordable for middle-class America.

In recent days President Barack Obama has taken a number of hits over the economy and the bonus packages being doled out by bailed-out insurer IAG. He has also received significant criticism, some coming from members of his own party, over his first proposed budget.

However, the newly-elected president continues to be a ray of hope for young people, particularly those pursuing a college degree. As but one example, within his proposed budget Obama is not only seeking to vastly increase the amount of money available under the Perkins Loan program, he is hoping to adjust the qualifications for such loans so that more students will be able to benefit from the program.

The proposal stands in stark contrast to that of our prior president. A year before leaving office, George Bush sought to eliminate the entire program.

Easing the Middle Class Burden

Arne Duncan, the newly appointed Secretary of State, touted the proposals in a recent address to a career and technical-college group. Duncan also insisted that the proposals were a critical component of the new administration’s plan to ease the middle-class burden associated with paying for the costs of a college education.

Obama’s plan is to expand the Perkins Loan program six-fold in terms of dollar amounts, from the current $1-billion available to $6-billion a year. In explaining the expansion, Duncan also indicated that the funds would help more students attain that coveted diploma, an indication that the Perkins Loan criteria might also be adjusted.

While the program is a loan option, borrowers would have access to low-interest, need-based annual loans. Currently, students may borrow up to $4,000 for their undergraduate years (maximum of $20,000) and $6,000 for graduate studies (maximum of $40,000).

The Perkins loans are exceedingly attractive to need-based recipients as they are provided fee-free, at low-interest and without a credit check. They also feature a nine-month completion of school grace period, a full three months longer than the traditional 6-month for other federal aid programs.

The Perkins loan expansion will be in addition to the tuition tax credit already in place. Congress recently approved increasing that tax credit from $1,800 to $2,500.

Program Adjustments Still Unclear

How the new funds will affect the program are not entirely clear as yet. Possible options include adjustments to the yearly borrowing limits and the per student lifetime totals.

Another potential option could simply be more funds for schools to loan out. The monies are currently provided on a first come, first serve basis and most schools run out of funds before all qualified-borrower needs are met.

Yet another option could be adjustments on the earnings-level threshold, a step that would allow more families to qualify for these low cost loans.

More details on the current Perkins Loans program are available here.

Flickr photos courtesy of Llima and Obama-Biden Transition Project.

High school students looking to learn more about the college application, admissions and choice process have a great upcoming opportunity next month.

CollegeWeekLive, the world’s biggest virtual college fair, has been set for March 25th and 26th. Featuring more than 250 colleges and universities from around the world, the annual event is expected to see as many as 28,000 attendees.

What makes CollegeWeekLive so unique is that it offers all of the standard college fair information that students seek when attending such an event but does so in an online format. Therefore, from one’s home or school computer, a prospective college student has access to a wealth of information in a cost-effective and convenient manner.

The bi-annual event (held each November and March) offers students access to some of the top experts in the field. Virtual fair attendees can watch admissions experts speak on SAT preparation, the application essay process and or how to pay for college. Attendees will also be able to ask various questions via live chats.

The event will also feature virtual booths for the various colleges taking part in the fair. These booths will offer student attendees electronic brochures, videos, webinars, and podcasts related to the school. In addition, students will have the opportunity to real-time Instant Message and/or video chat with admissions counselors and students from those institutions.

As for the specific, potentially-valuable presentations for students March 25th offers:

• How to Go to College in a Tough Economy – Dr. Katherine Cohen, Author, President of Applewise
• Perspective From the Admissions Office – An Admissions Office Panel featuring Dr. Patricia Peek, Fordham and Gil Rogers, U of New Haven
• How to Prepare for and Take the ACT – Andrea “Rae” Jones, ACT
• Getting Into College Support – Amy Newmark, Editor Chicken Soup For the Soul: Teens Talk Getting into College
• Being a Student Athlete – National Collegiate Scouting Association Counselor Lisa Strasman and Carla Pentimone
• Federal Financial Aid and the FAFSA Form – Department of Education
• Understanding the GI Bill – Patrick Campbell, Chief Legislative Counsel, Iraq and Afghanistan Veterans of America

On the second day, March 26th, scheduled topics and presenters include:

• What Matters in College Admissions – Matthew Greene
• Choosing a College – Rob Franek, The Princeton Review
• Mythbusting the SAT – Laurence Bunin, Senior Vice President of the SAT Program, The College Board
• Writing a College Essay – Jaye Fenderson, Author, Seventeen Magazine
• The College Interview and Visit – Bev Taylor, The Ivy Coach
• Attending an International School: The University of Melbourne – Krista Northup, North America Manager, University of Melbourne
• Planning For Paying For College – Angela Nuzzi, NHHEAF
• Sports Scholarships – Dion Wheeler, National Collegiate Scouting Association

More details on the proposed agenda as well as relevant links to some of the presenters are available on the CollegeWeekLive agenda page.

Though the program should be extremely worthwhile, as an added incentive to folks, College WeekLive will be giving away a brand new 13-inch aluminum MacBook to one lucky attendee of the fair! . There is a video contest and the chance to win a $2,500 scholarship to the college of your choice.

And if you attended the November CollegeWeekLive and are still a current high school student, you can also complete a survey that will make you eligible to win an iPod Touch or a $300 donation to the charity of your choice. High school seniors will find the link to their survey here while underclassmen will find a separate survey at this location.

In our prior post, we took students on a walk through some key components of personal finance. Our focus was on “good” debt (loans for college) versus “bad” debt (credit card debt) and what loans to consider, all with the idea of minimizing the debt students accrue while in college.

Today we spend some time with Kai Davis, a senior at the University of Oregon, who will graduate this spring with zero debt. Majoring in Economics and minoring in Business Administration, the Eugene, Oregon native offers readers some great insight into how to manage one’s personal finances.

To provide students a thorough look at how Kai has managed to earn a degree debt-free, we present our discussion with him in question and answer format.

As a freshman, did you make it a goal to graduate with zero debt?

No, it wasn’t ever a plan, but I was able to achieve it. I’ve always felt that having a smaller goal like minimizing my debt would be better than a hard and fast rule of no debt. I’ve found that I’ve made the biggest impact on my savings when I’ve adopted a few small rules. I only carry a credit card with me to earn rewards points and fill up my gas tank (I earn 5% back when I use my Chase Visa at a BP gas station). Instead I carry a small amount of cash with me. When I have the impulse to make a larger purchase I wait a few days, assess the need, check my budget, and see if I can afford it. I always want to make my purchase fully aware of costs beyond the price tag.

I think that understanding how to manage your money intelligently and aggressively is the most important skill that students can leave college with. A degree shows that you have the drive, intelligence, and ambition to complete 4 years of course work. It doesn’t give you a job in that field or even the desire for a job in that field. But understanding how to manage your finances is a skill that stays with you for life.

So, graduating without debt isn’t the skill to focus on. Graduating with the ability to understand personal finance is.

Everyone talks about the rising costs of college and how students today have to borrow money to be able to pay for school. How have you been able to graduate with no personal debt?

I was already planning on attending the University of Oregon due to its strong business program. I was able to save quite a bit of money by living at home for the first 3 years of college. I’ve worked 20-30 hours each week throughout college, either at work-study jobs or on start-ups with friends. I’ve found that spending a lot of time working during college doesn’t have to come at the cost of academic success. Rather, spending a good amount of time working during college has given me the ability to triage assignments by importance and complete my academic work in the minimum amount of time.

So your choice of school was critical to your current situation?

No, not at all. I’m lucky that the University of Oregon offered a strong Business Administration major and is an in-state school, so tuition was cheaper, but I’m fairly sure that any industrious student can manage their finances well in college if they take the time to learn the system.

Are there any other steps you have taken to earn additional money?

I’ve always worked on campus in work-study jobs. Its great for networking, learning new skills, and earning money while in college. I’ve also taken recent aggressive steps to manage my money by taking advantage of high interest savings and checking accounts. I switched from a bank paying me 1/10th of a percent interest annually to a bank paying 3.8% annually. If you’re committed to saving, the money quickly ads up.

Can you talk a little bit about credit cards and how you have managed to remain on top of credit card debt?

As a college student you’re existing on a small budget and lines of credit from the school and banks. Let’s say you spend your budget quicker than you anticipated and are left with only your credit card for the month. Every purchase you make on the credit card ends up costing you more to pay it back. I’m not saying don’t make purchases on your credit card – I often do – but be mindful of how long it will take you to pay it back. When I hit the cap on my monthly budget, the first thing I do is assess which planned purchases I can cut back on. I’d much rather go without seeing a movie than having to pay that purchase back plus interest. While seeing a movie might be with $7 cash out of pocket, it isn’t worth $7 + compounded interest on a credit card.

So you would recommend that students set up a budget?

When I first moved out, I set a budget to plan out exactly how much I’d spend on food, utilities, gas, everything. I quickly found out that a budget often serves more as a sketch for spending than the actual spending. Some months I spend more on food than I anticipated, some months I spend much less. I use a budget to figure out how much I think I’ll be spending on average, and then use the final budget total for my monthly planning. If at the end of the month I’ve only spent 90% of my budget, I take a look at what I thought I’d be buying compared to what I did buy and see if I can trim my monthly estimate. More often than not I’ll treat myself with the unexpected windfall or deposit some money into savings. Establishing a budget so you have a general idea of what you’ll be spending in a month is much more important than nailing down the exact values you’ll be spending.

Have you made it a point to focus in on your credit rating?

I think understanding how to use credit is as important as your degree. A horrible credit rating can harm you for a few years, but it doesn’t have to be the end of the world if you rebuild your rating. If you graduate college with bad credit, you have years to repair the credit before you start making those big purchases: a car, a house, a boat. One of my close friends graduated college without a credit rating. He was able to pay for his degree out of pocket and never bothered to open a credit card. By the time he was 26 he had a nice savings account – $50,000 or so. He decided to buy a house and let his savings appreciate there. He found a nice house at a wonderful price and went to talk to the bank about a loan and was turned down. Because he had no credit rating the bank saw him as too much of a risk and wouldn’t issue him a loan.

So is a credit standing as important as a degree?

Earning a degree elevates your standing in the eyes of potential employers just as a high credit rating helps you get credit to make those larger purchases. If you don’t know how to use your degree to effectively position yourself and get a job you want you won’t have as much success during your job search. Understanding how to manage a credit rating – even a bad one! – is one of the most important lessons you can learn in college.

Credit cards and student loans are not free money. Its very easy to think that you’ll just charge purchases to your credit card, make the minimum payment a few times, and be debt free in a few months, but it doesn’t work like that.

What are your thoughts about the importance of saving?

Learning to save now prevents problems later. If a student leaves college not knowing how to manage their money, how much will their lose before they learn how to save? If you leave college understanding the importance of having a check account, setting a monthly budget, eyeballing spending in certain areas relative to your income, shopping around for the highest interest rate on your accounts, and getting a credit card with rewards or cash back and paying it down quickly, you’ll be in great shape to manage your finances.

If you had the chance to offer an incoming freshman advice on personal finance, what would be the two or three things you would most emphasize with him or her?

I’d let them know that they don’t need to lose sleep over their finances. Yes, its an important thing to manage, but if you’re smart about paying your bills and keep to a schedule you’ll be fine. College is stressful enough without worrying that you won’t have enough liquidity come graduation. Take college one day at a time, try to avoid using a credit card unless it’s a purchase you know you can afford to pay off over time, and stay happy. At the end of the day, managing finances intelligently isn’t something you have to do perfectly, but just taking the time to read the fine print and understanding how to save and spend intelligently will make a large difference.

Flickr photos courtesy of Andres Rueda, TheTruthAbout and Eliane.

With his recent passing, descriptors of Claiborne Pell have been tossed around liberally. At times deemed a “quirky blueblood” and at other times a “dove,” Pell put his upbringing aside to to become a powerful representative of a more blue-collar Rhode Island populace in the U.S. Senate.

Perhaps most importantly, known for his honesty, integrity and for being polite to a fault, the millionaire’s gentlemanly approach to the world of politics hearkened to a different time, one that contrasts vividly with the current political landscape.

Though he excelled in his role as senator and representative of the people of Rhode Island for the better part of 36 years, college students are likely to be familiar only with the man’s last name and his mark on education. The Senator was of course the founder of the Pell grant program, one that has helped tens of millions of Americans attend college.

It was striking that the idea to help those with financial need came from the son of a New York congressman. Believing that financial aid should be given directly to students rather than distributed by colleges and universities, Pell actually spent his entire political career pursuing help for those who were less fortunate than he.

Legendary Stories
At times deemed absent-minded, at other times soft because of his self-deprecating behavior, legendary stories were recounted many times.

Projo.com tells the tale of his driving record thus:

He was such a poor driver that for years he drove in a white Mustang that was fitted with a roll-bar. That feature — plus the array of body dents and the pelican hood ornament he had borrowed from his family crest — always distinguished Pell’s car from the somber sedans at the foot of the Capitol steps.

In his obituary shared on Yahoo, there was also the story from Pell’s 1972 Senate campaign, a tale that has been told quite often “to illustrate his isolation from the average Joe.”

Pell was campaigning in Providence when it began raining. Pell, who had a formal evening engagement, had forgotten his galoshes. An aide was dispatched and returned with a pair.

In his very formal manner of speech, Pell asked the aide, “To whom am I indebted for these fine rubbers?”

“I got them at Thom McAn, senator,” the aide answered, referring to the budget shoe store chain.

“Well, do tell Mr. McAn that I am much obliged to him,” Pell said.

The tale has been told many times, on occasion with the first part embellished and the final two lines omitted.

Commemorating a Great Man

Pell died on January 1st at the age of 90 having battled Parkinson’s disease since the mid-1990s. If you are, or have been one of the more than 50 million Americans to receive a Pell Grant, you owe it to yourself to learn a little more about the man.

In an effort to do so, we offer a link to current Rhode Island Senator Sheldon Whitehouse commemorating Pell’s passing.

The text of Whitehouse’s commemoration can be found on the WPRI.com news site.

Video is also courtesy of WPRI.com.

When it comes to funding the costs of higher education, there is growing sentiment that our current system is in bad need of an overhaul.

By all measures, the costs of college continue to soar. At the same time, securing affordable credit amidst the current economic downturn has never been more challenging.

With many experts insisting that a college diploma is slipping beyond the grasp of a number of students, a radical concept for funding higher education first proposed by economist Milton Friedman in 1955 is now gaining traction. The concept, called human capital contracts, provides the out-of-the-box thinking that could dramatically shift the student financial aid landscape moving forward.

Equity-Like Instrument
The idea is to move from traditional debt-style methodology to what economists call an equity instrument. In essence, a group of investors agrees to cover a portion of the cost of higher education for a student in return for an equity share of the student’s future earnings for a fixed period of time.

Since students would not be borrowing a sum of money at a specific interest rate, they would theoretically graduate with zero college debt. At that time, the repayment on the initial investment would come from a specific percentage of the student’s earned wages. Because the student does not need to earn a specific sum each year to meet past debt obligations, the future financial hardship for graduates would be dramatically reduced.

A student choosing a lower paying profession would pay back a smaller sum during the time period that someone choosing a higher paying profession. In human capital contracts, the greatest risk moves from the student to the group that has funded a portion of the student’s education.

The thinking is that such a concept would likely increase the pool of students willing to consider careers in non-profit sectors such as teaching or health care. Instead of shaping their career choice around the need to pay back what they might have borrowed, students would be free to pursue any line of work they deemed most rewarding.

It would also definitively shift some of the costs of higher education away from the more traditional funding methods, especially federal and state grants. This would help both levels of government deal with the challenges of multiple funding priorities at a time when taxpayers want to see tax reductions.

Concept Catching On
It seems that the concept has been catching on in both Europe and Latin America. One such company, Lumni, appears ready to bring the concept to the United States.

Critical to making the concept work is a complex sliding scale of terms. A company investing in a student majoring in a profession like engineering and attending an institution like MIT would need a smaller overall percentage of return since that student would likely have substantial future earnings. On the flip side, a history major attending a community college would face a higher overall assessed percentage.

The concept holds great weight for those who want to see higher education itself be more responsive to students. Once the concept is rolled out, the thinking is that investors would offer the best terms to students attending schools that produce real value, well-educated students and high degree completion rates.

The responsibility for seeking out such information would move from students to the investors. Savvy companies wanting a solid return on investment would theoretically force colleges to be more forthcoming about critical data related to student success rates.

Ultimately, proponents of the concept insist the process would push schools to prepare students for future success.

Creative Concept
While no one is suggesting the complete elimination of state and federal involvement in higher education, many believe the time has come for the concept of human capital contracts to enter the funding formula. Legal ramifications, including those related to default and bankruptcy, still exist and therefore must be carefully resolved.

Still, those who are asking for more creative, out-of-the-box thinking, now have a unique idea to consider. The critical question may well be how students feel about selling a piece of their future earnings.

Flickr photos courtesy of djukami and LeeBennett.

Students and parents, if you’re attending a US college, it’s to fill out your FAFSA. If you’re not all too familiar with the form and what it’s all about, it’s a free application for federal student aid. The application is used to determine the amount of money you’ll be given to go towards your college education. Just about every single US college utilizes the FAFSA system.

There are roughly 14 million students receiving over $80 billion in financial aid yearly.

How is the FAFSA organized? There are five parts: information about the student, information about the student’s dependency status, information about the parents of the student, financial information about the student, and a list of schools that should receive the FAFSA information (similar to providing your college with your SAT/ACT scores).

There are two ways to apply: online or by mail. While the federal deadline is June 30th, April 15 (tax time) is literally right around the corner and some states require this form to be filled out prior to then. Ideally, you should have this form filled out closer to February, but this is a last call reminder in case you were unable to do it then.

The FAFSA form can be filled out here.

College is expensive, but don’t get drawn into any scams. If it’s too good to be true, it probably is. If you thought the Nigerian scams were bad, college scholarship scammers convince innocent families that they have billions of dollars of private funding — but they do not. Before you proceed handing over your financial information, make sure to check the authenticity of these scholarship foundations to see if they’re indeed reputable.

Here are some telltale signs that your scholarship may be fraudulent:

• Is the scholarship funding guaranteed — or your money back?
• Is the scholarship one of a kind? Are there other programs like it around? If it offers a unique selling proposition, it could be dangerous.
• Are you required to do anything besides paperwork? If they promise to do all the work, it may be sketchy.
• Is it free? Scholarships shouldn’t cost you anything.
• Are they asking for personal information? If you’re being asked for your checking account or credit card number, this is a sign of trouble. Don’t give in!

If in doubt, don’t proceed. Call the National Fraud Information Center at 1-800-876-7060. For more information, check out the FinAid list on how to identify scholarship scams. Keep in mind their very first sentence: if you have to pay money to get money, it’s probably a scam.