This guest post is brought to you by Ryan Ayres from The Financial Student, a personal finance site for teens, college students, and lifelong learners interested in the basics of personal finance.
While the Free Application for Federal Student Aid was due months ago, the effects of it will be felt by college students for years. Some students will receive grants that never have to be paid back while others will receive subsidized loans from Uncle Sam. No matter what one’s individual situation is, the FAFSA is a key factor in college finances.
But Is The FAFSA Fair?
The number of grants and type of loans a student receives is almost entirely based on how much their parents earn. The logic goes that if your parents are loaded, then you don’t need as much, if any, government assistance. There are, however, some problems with this system:
1. The FAFSA assumes that parents are going to pay for college. If your parents believe you should pay your own way, then their income and assets are irrelevant. While my own parents will most likely help out with some expenses — like books and maybe making a few interest payments on my student loans — I’m responsible for the majority of the cost. Why does it matter how much they earn?
Image from Time.com
2. The FAFSA punishes you for being a good money manager. The government looks at a family’s assets to figure out how much assistance their child will receive. That means emergency funds actually work against students. Same with those online brokerage accounts or owning a business. Now, this doesn’t mean that high school students and their families shouldn’t save money over the years, but it’s interesting how good behavior is actually discouraged! Many people (myself included) therefore recommend making large purchases (home renovations, automobiles, furniture) to lower assets on the FAFSA.
3. The FAFSA doesn’t do a whole lot to help out the middle class. The worst off will receive the best grants that never have to be repaid. The richest Americans will be able to cover the cost without many, if any, problems. That leaves the middle class to fend almost entirely for themselves. For example, I didn’t receive anything other than subsidized loans. No “free” money. And my parents are most definitely middle class: a schoolteacher and paramedic! The interest break is nice, but the average $24,000 that a student borrows is still a decent chunk of change to pay back.
Questioning FAFSA: Free Application For Federal Student Aid
Despite what’s wrong with the FAFSA, it certainly does a lot of good. Overall, more students are able to attend school because of this program. Since the federal government need not impress shareholders like big banks do, the result here is that they can provide low interest rates for loans. But it’s far from a perfect system. The best way to prepare for a student’s schooling is to handle it yourself – fund a 529 college savings plan or Educational Savings Account if you can, have your child apply for as many scholarships as possible, and consider a cheaper school.
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