The decisions made by the Supreme Court regarding affirmative action programs and President Biden’s student debt cancellation plan will have a significant impact on millions of individuals. Whether they are preparing to apply for college or are currently trying to pay off their student loans, these rulings will shape their future.
After a three-year pause due to the pandemic, student loan repayment is set to resume. To help navigate this restart, Tara has created a comprehensive guide. Additionally, the Biden administration has proposed a new income-driven repayment program that could potentially lower monthly payments for millions of borrowers. Tara has also provided an FAQ section addressing this program.
Recently, the Biden administration announced a new legal strategy for widespread student debt cancellation, utilizing a different law than the previous unsuccessful effort. Ron has written an explainer on this “compromise and settlement” authority that the Education Department plans to assert.
We asked our readers to send us their questions about paying for college, and we’ve selected a few to answer below.
Preparing for the Cost of College
Many parents find it daunting to consider how they will pay for their child’s college education, especially when it could result in significant debt. Financial planner Kevin McKinley suggests breaking down the cost into manageable chunks. Saving a portion over the course of 18 years, utilizing current income while the child is in college, and borrowing the remaining amount can help alleviate financial stress. Read Ron’s article on what he calls the McKinley Rule for further guidance.
If no savings have been accrued, there are still options available. Federal loans can cover a portion of the costs, and working part-time during the school year and full-time during summer breaks can contribute significantly. Parents may need to tighten their budget or explore additional income sources to cover the rest. Starting at a community college can also be a more affordable option. Ron has written about specific strategies for community college students.
Financial Aid for International Students
The recent rulings are not anticipated to have a significant impact on financial aid for international students, which was already limited. Most colleges view international students as revenue sources and prioritize their admission. However, it’s important to research individual college policies and statistics regarding international students. Websites often provide this information, along with resources specifically designed for international students.
Only eight need-blind admission colleges fully meet the financial needs of international students: Amherst, Bowdoin, Dartmouth, Georgetown, Harvard, MIT, Princeton, and Yale. Mark Kantrowitz, a student aid expert, confirms this.
529 College Savings Plans
There are common misconceptions about how 529 college savings plans affect eligibility for financial aid, but your initial belief was correct. These accounts, which allow tax-free growth and withdrawal for qualified expenses, are usually the best way to save for college and have minimal impact on federal aid eligibility. Ultimately, income plays a more significant role than savings when determining financial aid packages.
If the 529 account is owned by the parent or dependent student, only a small percentage (up to 5.64%) is counted towards financial aid calculations. If the account is owned by a grandparent or relative, it is not included in the calculations initially. However, any withdrawals for college expenses are considered untaxed income and must be reported on the FAFSA. Good news – the upcoming financial aid form will no longer require reporting of grandparent withdrawals.
Regarding retirement accounts, some experts recommend putting a portion of college savings into a Roth IRA. This won’t impact financial aid eligibility until distributions are made. Withdrawals made after the student’s sophomore year won’t affect aid eligibility if they will graduate in four years.
Independent Status
The total cost of enrolling as an independent student can vary depending on factors such as residency, transportation, and other living expenses. Independent students generally qualify for more federal financial aid and higher loan amounts. Factors that determine independent status include being at least 24 years old, married, a graduate student, or having dependents. To obtain accurate estimates, it’s best to use a college’s net price calculator.
The Availability of Merit Aid
For families who earn too much to qualify for financial aid but still struggle to pay out of pocket, merit aid is available. Merit aid is based on a student’s accomplishments rather than their family’s income. The amount of merit aid received varies, and it’s important to research specific colleges and their merit aid offerings.
In conclusion, understanding the options available and conducting thorough research can help students and families navigate the complexities of paying for college. It’s important to remember that there are strategies and resources available to alleviate the burden of college expenses.
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