College Pete

Experts Warn Families of ‘Extraordinary Complications’ in This Year’s Financial Aid Process

Experts Warn Families of ‘Extraordinary Complications’ in This Year’s Financial Aid Process

I’m not usually one to sound an alarm, but I did want to give everyone a quick heads up about what the government-proposed mandatory spending reductions, also known as sequestration, could mean for families seeking financial aid in 2013.  

According to a report released Friday (9/14/12) by the White House’s Office of Management and Budget, aside from the Pell Grant (which is still protected from the cuts — at least for fiscal year 2013), other federal financial aid programs would be cut by 7.6 percent across the board.  This includes the Supplemental Educational Opportunity Grant and federal work-study.  And if that wasn’t bad enough, the cuts would increase student loan origination fees.

Please note that these cuts will go into affect on January 1st — and thus will impact this cycle of financial aid — but only if Congress does not agree on a long-term plan to reduce the deficit by the end of the year.  That said, at this point, it’s the uncertainty of whether this will happen or not, that is causing problems (albeit, unintended ones) for families with students applying to college this year.  Although all sides want to reach a deal to avert the cuts, many experts predict that to be unlikely at least until after the election — and probably not before January, AFTER the cuts have already taken effect — and AFTER schools begin accepting student’s financial aid applications.

As many of you know, the financial aid process rewards the ‘early bird’ and often doles out the more favorable awards on a first-come, first-served basis.  With all the uncertainty surrounding the funding pool, I am bracing for an even more competitive process this year… one in which funding levels remain uncertain at best, and are considerably reduced, at worst.  Needless to say, I’m getting a head start and will begin preparing my clients next month.

To make sure that you get your fair share (and remember, all families should apply for financial aid regardless of whether they think or have been told they won’t qualify), you should have your funding plan in place prior to the end of the year – -and ideally before December 1st.  To do so, you must first learn what your going to be expected (by the government & the school) to contribute to your child’s education.  This is called your Expected Family Contribution (EFC) and it is derived from your responses to questions on the FAFSA (Free Application for Federal Student Aid) and is the result of a formula based on Department of Education regulations.  It’s important to note two things about your EFC: 1. you probably won’t like it – I’ve seen families with Adjusted Gross Incomes below $60,000 with initial EFC’s that were higher than $60,000;  and 2.  there are legal and ethical strategies that can and should reduce your EFC… some by as much 30-40%.

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