Student Loans & College Financial Aid Planning For ParentsFebruary 22, 2019
The purpose of this blog is to discuss the options for parents seeking financial aid for their students. FAFSA stands for the Free Federal Student Aid Forms. Every parent seeking financial aid for their college student is required to fill out a FAFSA form each year. The assets of the students, as well as the parent’s assets, are reviewed.
Many times, if there is demonstrated a financial need, the student will be able to receive grants or scholarships that do not require repayment.
However, much of the additional cost of tuition must be paid by the parents, or a combination of the parents and students through a variety of student loans.
Students can participate in the Direct Student Loan Program and seek either subsidized or non-subsidized loans. This means that the interest can be reduced by the Federal government during the time that the student is in school. However, there are additional sources where loans are not subsidized, and students or parents will pay market rates.
The biggest concern for any student loan borrower is that student loans impact your credit rating, and through Federal legislation, most student loans are not dischargeable in a bankruptcy. The only exception to this would be if the recipient of the training or education could not benefit from the same. In other words, it would be possible for a student who is disabled after receiving an education, but cannot benefit from that training received for a particular vocation or career, can have his student loans forgiven. This is different from a bankruptcy discharge. Additionally, in bankruptcy, the student loan debtor may be able to convince a bankruptcy Judge that the hardship of paying back the student loans is so great that the student loan should be discharged. This would mean that the student cannot benefit from the training. There have been a number of cases in litigation involving certain proprietary schools that allegedly did not deliver the promise of a career or vocation after completion of training. Refunds or loan forgiven was ordered by the courts. These types of cases are rare. So, the assumption would be that if you have completed your course of training; you should be employable in your field, and therefore, be able to pay back your student loans.
Unfortunately, I have seen too many instances where students borrow a great deal of money, are employed in their field, and still cannot service their student loan debt. For instance, I was approached by a practicing lawyer who had $200,000 in student loans. She asked me whether they could be discharged in a bankruptcy. Using the analysis I set out above, I said “no.” She was not disabled, was also practicing law, meaning that she had successfully completed her course of training, received the proper state licensure, and was employed in her field. This is certainly not a case where any Bankruptcy Judge, or the Department of Education will forgive this type of loan.
Moreover, the perils to parents are even greater. If you co-sign a student loan with your child, you have to go through the same analysis. In other words, if the student can benefit from her training, you are going to be responsible for repayment along with your student child. This can create a great problem for parents since you are paying for educational expenses instead of paying your own household expenses, or perhaps saving for your retirement.
For this reason, you should review the student aid application to determine whether or not the student loan borrowing makes sense to you. In other words, look at options to determine, in the alternative, whether your child can begin his course of training in a community college, which is much cheaper. Or by contrast, consider that some of the most competitive colleges and universities in the United States have great financial aid packages that will allow your gifted child to opt for a better education without fear of financial issues. It is very likely the competitive schools will seek out your child, and make sure that the financial aid package is sufficient to permit the child to attend that school. For instance, many Ivy league schools now charge no tuition or room and board for any child coming from a family making less than $100,000 per year.
To conclude, parents should research all types of financial aid. Moreover, do not be bashful when seeking grants and scholarships before committing to a particular college.
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