TIME Education

FAFSA Application Confusion Led to Some Students Getting Aid in Error

And others who needed aid didn't get it at all

Thousands of students’ federal student aid could be at risk due to a change on the Free Application for Federal Student Aid (FAFSA) form.

Students’ may have input incorrect income due to the system’s requirement that families round to the nearest dollar. In many cases, the Department of Education believes students entered unnecessary decimal points and cents that went unrecognized and as a result, some students who needed federal aid were denied and others received it when they weren’t eligible.

“For example, an applicant with an Income Earned from Work value of $5,000.19 who, as a result of entering both the dollars and cents would have, instead of the correct value of $5,000, a value of $500,019 used in the calculation of the applicant’s Expected Family Contribution (EFC),” an announcement dated July 18 reads. “This would likely result in an incorrect determination of the applicant’s eligibility for a Federal Pell Grant and for other subsidized aid.” The Associated Press first reported the story Wednesday.

The Department of Education believes fewer than 200,000 applicants will be impacted by the glitch. The form has since been changed and the Department is working to contact students and schools to have forms resubmitted.

MONEY Financial Planning

The One Time Raiding Your Kid’s College Savings Makes Sense

Broken money jar
Normally, breaking into your college savings accounts is a no-no. Jeffrey Coolidge—Getty Images

It's never a great idea, but in an emergency tapping funds earmarked for education beats sabotaging your retirement plans.

Lauren Greutman felt sick.

She and her husband Mark were about $40,000 in debt, and were having trouble paying their monthly bills. As recent homebuyers, the Syracuse, N.Y. couple were already underwater on their mortgage and getting by on one income as Lauren focused on being a stay-at-home mom.

“We were in a really bad financial position, and just didn’t have the money to make ends meet,” remembers Greutman, now 33 and a mom of four.

There was one pot of money just sitting there: their son’s college savings, about $6,500 at the time. That is when they had to make a tough decision.

“We had to pull money out of the account,” she says. “We thought long and hard about it and felt almost dishonest. But it was either leave it in there, or pay the mortgage and be able to eat.”

It is a quandary faced by parents in dire financial straits: Should you treat your kids’ college savings—often housed in so-called 529 plans—as a sacred lockbox, or as a ready source of funds that may be tapped when necessary.

Precise figures are not available, since those making 529-plan withdrawals do not have to tell administrators whether or not the funds are being used for qualified higher education expenses, according to the College Savings Plans Network. That is a matter between the account owner and the Internal Revenue Service.

TIAA-CREF, which administrates many 529 plans for states, estimates that between 10% to 20% of plan withdrawals are non-qualified and not being used for their intended purpose of covering educational expenses.

It is never a first option to draw college money down early, of course. Private four-year colleges cost an average of $30,094 in tuition and fees for 2013/14, according to the College Board. Since that number will presumably rise much more by the time your toddler graduates from high school, parents need to be stocking those financial cupboards rather than emptying them out.

Joe Hurley, founder of Savingforcollege.com, has a message for stressed-out parents: Don’t beat yourselves up about it.

“The plans were designed to give account owners flexible access to their funds,” Hurley says. “I imagine parents would feel some guilt. But I don’t think they should. After all, it is their money.”

Why the Alternative Might Be Worse

Keep in mind that there are often significant financial penalties involved. With non-qualified distributions from a 529 plan, in most cases you are looking at a 10% penalty on the earnings. Withdrawn earnings will also be treated as income on your tax return, and if you took a state tax deduction on the original investment, withdrawn contributions often count as income as well.

Not ideal, of course. But if your other option for emergency funds is to raid your own retirement accounts, tapping college savings is a last-ditch avenue to consider. That’s not only because you do not want to blow up your own nest egg, but because it could make relative sense tax-wise. And as the saying goes, you can borrow money for college, but not for retirement.

“If you think about it, a parent who has a choice between tapping the 529 and tapping a retirement account might be better off tapping the 529,” says James Kinney, a planner with Financial Pathway Advisors in Bridgewater, N.J.

If the account is comprised of 30% earnings, then only 30% would be subject to tax and penalty, Kinney explains. And that compares favorably to a premature distribution from a 401(k) or IRA, where 100% of the distribution will be subject to taxes plus a penalty.

Lauren Greutman’s story has a happy ending. She and her husband made a pledge to restock their son’s college savings as soon as they were financially able. It is a pledge they kept: Now eight-years-old, their son has a healthy $12,000 growing in his account.

She even runs a site about budgeting and frugal living at iamthatlady.com. Still, the wrenching decision to tap college savings certainly was not easy—especially since other family members had contributed to that account.

“We tried to take emotion out of it, even though we felt so bad,” Greutman says. “Since we didn’t have money for groceries at that point, we knew our family would understand.”

Related: 4 Reasons You Shouldn’t Be Saving for College Just Yet

MONEY College

Here’s How to Get Your Parents to Pay for Your Kids’ Education

Grandma opening coin purse
Getty

A 529 plan can help grandkids with their education -- and provide a tax break for Grandma and Grandpa.

Many grandparents want to help their grandchildren pay for college, but don’t know the best ways to do that. Good news: They can make those contributions while reaping financial advantages for themselves.

Nearly half of grandparents expect to contribute to their grandkids’ college savings, with more than a third expecting to give $50,000 or more, according to a 2014 Fidelity Investments study. That generosity can also be channeled toward significant tax and estate planning benefits for the grandparents.

Enter the 529 plan, a college savings investment account that provides tax-free growth as long as the money is put toward tuition and most types of college expenses such as fees and books. What’s more, grandparents can score their own financial perks, said Matt Golden, vice president of college savings for Fidelity Financial Advisor Solutions.

Grandparents can use 529 accounts to reap tax deductions or reduce the value of their taxable estates.

Furthermore, 529 plans have limits that might be comforting for grandparents who worry that their grandchildren might spend the money frivolously, or that they might end up needing it themselves. Grandchildren must use the funds only for certain college expenses, such as tuition and books. What’s more, grandparents can keep the money if they need it, subject to penalties and taxes, say advisers.

Working the Angles

For financial advisers, conversations with clients about these issues can build trust, said Charles Wareham, a Hartford-based adviser specializing in college funding strategies. Wareham’s firm holds Sunday brunches for parents and grandparents to teach them about college funding. The events have become relationship-builders, he said.

One way to showcase 529 accounts is by highlighting their advantages over other savings strategies.

“Many grandparents give EE bonds for holidays and birthdays, which can hurt more than help as far as tax purposes,” says Wareham.

For example, grandchildren who receive Series EE bonds as birthday gifts can later be socked with federal income taxes on the interest if they don’t use the funds for college, according to the U.S. Department of the Treasury.

A 529 plan, in contrast, provides for tax-free distributions for college. It also allows grandparents to give the funds to another grandchild if the intended recipient does not go to college or need the money.

Grandparents may also be eligible for state income tax deductions when they make 529 contributions – they are available in 34 states and the District of Columbia, according to FinAid, a website about financial aid. They can also take required minimum distributions from their IRA accounts and transfer those funds to the 529 plan, where they can continue to grow tax-deferred, Fidelity’s Golden says.

Savvy advisers can compare plans from various states and help their clients find the best ones, though usually tax breaks are only available to people who invest in their own state’s plan.

A 529 plan is also a unique way for grandparents to reduce the value of their estates: they can contribute up to five years’ worth of allowable gifts in one year without triggering federal gift taxes. That means clients filing jointly can invest $140,000 in one lump sum per grandchild.

One caveat: 529 accounts could make a grandchild ineligible for financial aid, says Golden. That is because the money, once withdrawn for the beneficiary, counts as income that schools use to determine financial aid awards. But grandparents can avoid the problem by waiting until the recipient’s junior or senior year to hand over the money, when students may not need as much aid, Golden says.

MONEY Debt

Have You Conquered Debt? Tell Us Your Story

Have you gotten rid of a big IOU on your balance sheet, or at least made significant progress toward that end? MONEY wants to hear your digging-out-of-debt stories, to share with and inspire our readers who might be in similar situations.

Use the confidential form below to tell us about it. What kind of debt did you have, and how much? How did you erase it—or what are you currently doing? What advice do you have for other people in your situation? We’re interested in stories about all kinds of debt, from student loans to credit cards to car loans to mortgages.

Please also let us know where you’re from, what you do for a living, and how old you are. We won’t use your story unless we speak with you first.

TIME Thailand

And Then There Was the College Lecturer Who Gave Out Grades in Return for 7-Eleven Coupons

Inside A 7-Eleven Store Ahead Of CP All Pcl Full-Year Results
A customer exits a 7-Eleven convenience store, operated by CP All Pcl, in Bangkok, Thailand, on Wednesday, Feb. 19, 2014. Dario Pignatelli—Bloomberg/Getty Images

“She might have thought it was ordinary practice,” said her boss

A university lecturer in Thailand has been caught offering top grades in exchange for 7-Eleven coupons, or stamps, redeemable at the convenience store chain for small gifts or discounts.

When a class at Kalasin Rajabhat University, in northeast Thailand, complained to the lecturer about the selling of test scores, she rebuked them, and someone in class filmed her doing so.

From the conversation, it appears that 25 coupons earned a one-grade bump, with one student shelling out 400 coupons for an A+, reports the Bangkok Post.

“Khanittha got 17 points in psychology class. She gave me stamps,” the teacher says on the video. “Then, I gave her A+. Do you think you got that grade by your own brain?”

Thailand boasts some 7,000 7-Elevens nationwide — the third-largest presence for the chain after Japan and the U.S.

On Tuesday, the Council of Rajabhat University Presidents of Thailand — known by its unfortunate acronym CRUPT — ordered an investigation.

“Teachers should never exploit their students for any purpose,” said CRUPT president Niwat Klin-Ngam.

Despite suspending the lecturer, who worked for the university’s pre-school education department, acting Kalasin Rajabhat University rector Nopporn Kosirayothin said there may be extenuating circumstances.

“She might have thought it was ordinary practice,” he said. “Judging from what I heard, some lecturers at other places also exchange grades for some beer.”

[Bangkok Post]

TIME Innovation

Five Best Ideas of the Day: July 15

1. With the $3 billion annual cost of fighting piracy at sea, we could invest in economic and infrastructure development on the Somali coast to take down piracy’s root causes.

By Anja Shortland and Federico Varese in The Conversation

2. Simply by letting students understand their financial aid picture earlier, we can improve college access and post-secondary options for low-income students.

By Fawn Johnson in National Journal

3. The story of ISIS, which has seemed to be all about religion and military developments, is actually mostly about politics: access to government revenue and services, a say in decision-making, and a modicum of social justice.

By Jessica Tuchman Mathews in the New York Review of Books

4. Giving a supercomputer “life after retirement” means investing in the future of technology in Africa.

By Jorge Salazar at the Texas Advanced Computing Center, UT-Austin

5. Europe has a role – and a responsibility – to stay engaged as the U.S. ‘rebalances’ toward China.

By Joseph S. Nye in Project Syndicate

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

MONEY College

Two New Proposals Would Make College Free Nationwide

140715_HO_FreeCollege_1.jpg
Michael Burrell / Alamy

With student loan debt crippling students, education advocates are suggesting ways to change how federal financial aid money is distributed.

Adele Williams often hears her friends from high school talking about their struggles to afford college.

But she can’t relate—she doesn’t pay any tuition at all. At the school she attends, Alice Lloyd College in Kentucky, students attend for free in exchange for working.

Her friends at other schools, she says, “are mostly jealous.”

At a time when the cost of attending many private colleges exceeds the national median household income, the idea of paying no tuition at all seems so unrealistic that one higher-education economist refers to it as “la-la land.” But there are a handful of schools—such as Alice Lloyd and others—that don’t charge students a penny. Meanwhile, Tennessee will make all of its community colleges free for state residents beginning next year, and Oregon is moving forward with a study considering the same thing.

Now two new proposals go even farther, both aiming to make no-cost college a nationwide standard. A report from the Lumina Foundation recommends that the first two years of public universities and colleges be free, and a new nonprofit called Redeeming America’s Promise has come out with a proposal to give every lower- and middle-class student a full ride.

“The rising millennial generation has been so deeply affected by student debt that they’re driving a conversation about this challenge,” says Morley Winograd, the president of Redeeming America’s Promise, who worked as an advisor to Vice President Al Gore during the Clinton Administration. She added that “well-meaning but what I would call Band-Aid solutions” aren’t enough to fix the problem.

Existing financial aid was created to help the lowest-income students at a time when middle-class and wealthier families had little trouble paying for college on their own, notes University of Wisconsin-Madison sociologist and higher-education policy expert Sara Goldrick-Rab, who co-authored the other proposal. “But the people who are struggling to pay for college today go way beyond poor people,” she says. “There’s a need for a universal program.”

The Full Ride Proposal

Redeeming America’s Promise proposes redirecting existing federal and state financial aid and tuition tax breaks to give full tuition scholarships in specified amounts. It says the amount of money the government already spends for those purposes is enough to provide $2,500 per academic year for community college and $8,500 for four-year universities to every student from a family earning $180,000 a year or less.

That would just about cover the entire average advertised full cost of public college and university tuitions for everyone, the organization says.

Under the plan, which is backed by several Republican and Democratic former governors, Cabinet members, and members of Congress, the students could take out loans to cover their living expenses and repay them based on their incomes after graduation.

The scholarships would be limited to two years for an associate’s degree and four years for a bachelor’s degree to encourage students to graduate on time—which only a fifth of those at four-year institutions currently do and 4% at two-year schools.

Colleges and universities generally wouldn’t be allowed to raise their prices higher than the scholarship amounts, forcing them to control their costs.

The 50% Plan

Goldrick-Rab and her colleague, Nancy Kendall urge in their report that the billions of dollars in federal financial aid money and some state money be redirected to make tuition, fees, books, and supplies free for the first two years of any two- or four-year public university or college and that students be given stipends and jobs to help them pay their living expenses.

Goldrick-Rab and Kendall call this the free two-year college option, or F2CO.

The Reality Check

The Redeeming America’s Promise scholarships would cover the full cost of tuition at public universities and colleges not private ones, the influential lobbies of which are likely to oppose the idea on the grounds that it would divert students from them.

But public institutions might oppose as well, on the basis that the plan would be a form of price control or that they wouldn’t be able to handle, at the amount they are allowed to charge, the flood of students projected to descend on them. Tennessee universities opposed making community colleges free in that state, for example, until lawmakers agreed to make some changes in funding for them.

“We had four-year schools that were going, ‘Wow, it’s going to be hard for us to compete with free,’” said Tennessee Governor Bill Haslam.

And the sweeping, dramatic changes suggested in either proposal would face an uphill battle in a divided government that has been challenged to make even marginal policy decisions.

“It’s very difficult to separate the politics from the economics,” said David Breneman, a professor in the economics of education at the University of Virginia.

Breneman pronounced both free-college proposals “not realistic,” especially at four-year institutions (“That’s just La-La Land”), though he said they might stir up a helpful conversation about untangling the way the government helps students pay for college.

“When you look at what a mess we’ve made of student aid and how complicated it’s gotten and the loan craziness, it’s not surprising that people look back at those days when we just had low tuition,” he said.

Even the free-college crusaders are not optimistic about these plans being adopted in the immediate future.

“No way is it happening today,” said Goldrick Rab. “To me the question is, will enough groundwork be laid today that it becomes something groups are working on for the next 10 to 12 years, and that eventually becomes a litmus test for people we elect.”

Winograd said more states could make public colleges and universities free sooner than that, mostly without federal involvement. Advocates in some already have proposed it, and many states are watching the free-college experiment in Tennessee, where the $34 million-a-year cost is to be underwritten by a $300 million endowment paid for from lottery proceeds. (In Oregon, the annual cost is estimated at $100 million to $200 million.)

“The political will to do it does exist, not necessarily in Washington, but throughout the country,” Winograd said.

__________

This story was produced by The Hechinger Report, a nonprofit, nonpartisan education-news outlet based at Teachers College, Columbia University.

Related stories:

Colleges try to speed up pace at which students earn degrees

Testing your way to a degree

Residents are crowded out of college by out-of-state and foreign students

Just as it wants students to speed up, government won’t pay for summer courses

MONEY College

How to Judge a College By Its Career Services Office

ESPN "This is SportsCenter" campaign with Bucky the Badger, the official mascot of the University of Wisconsin–Madison, by Wieden+Kennedy.
Will your child's dream school land him his dream cubicle? Wieden+Kennedy

The placement office is now one of the most important stops on the campus tour.

With loan-burdened students and parents increasingly demanding that a BA lead to a J-O-B, colleges are beefing up their placement services. This year, for the first time since the financial crisis, the typical career office—which has struggled with caseloads of about 1,500 undergrads per staffer—­enjoyed a boost in operating budget instead of a cut, the National Asso­ciation of Colleges and Employers (NACE) reports. “We’re about to experience the golden era of career services,” says Thomas Devlin, director of UC Berkeley’s career center.

To ensure that gold enriches your kid’s job search, look for colleges with good answers to the following questions. Just be sure to temper sales spiels with feedback from students and alumni, plus data from sources like Payscale.com.

How is the office staffed? The best career offices have caseloads of fewer than 1,100 undergrads per counselor, allowing at least one staff hour per student per year. Expertise matters too. “It’s a bad signal if a school doesn’t have someone dedicated to encouraging employers to recruit,” says Andy Chan, vice president of career development at Wake Forest. Each office should also have a person who specializes in connecting students with alumni, as well as an expert in technology and social media (like LinkedIn).

What services are offered? Employers prefer to recruit at campuses where students come to interviews prepared and book meetings only for jobs they’d actually consider, says Dan Black, president of NACE and Americas director of recruiting at professional services firm EY. So confirm that the school works with students one-on-one to narrow the
ir career focus and coaches them for interviews, he says. And ask if there are formal ways of networking with alums, like shadowing or mentoring; if academic departments also work on career skills; and what help is offered to grads, whether it’s simply job listings (eh) or counseling (better).

When does career prep begin? Studies show that the sooner students start working on career preparedness, the better they do in the job market. Ideally, the college will be equipped to work with students during their first or second year. Since underclassmen tend to steer clear of career services, though, some schools are experimenting with ways to motivate young’uns to think about vocations. Willamette University, in Salem, Ore., for example, requires freshmen to create a résumé before registering for sophomore classes.

Are internships a priority? On-campus recruiting by prestigious employers is definitely a good sign, but few undergrads get jobs that way, says Bob Orndorff, associate director of employer relations at Penn State. Meanwhile, at least 24% of internships lead to job offers, NACE reports. “Employers are looking for recruits with rele­vant experience,” Orndorff says. So find out how the school helps arrange internships and what percentage of students get them. The more students doing paid internships, especially, the better.

Hire Ed

___________

WATCH: Was your college’s career services office any help?

MONEY 101: How to start saving for college

MONEY College

22 Colleges Where You Can Earn a Degree for Free. Seriously.

Deep Springs College, California
At Deep Springs College in California, students pay their way by working on the ranch. Brian L. Frank—Redux

You'll never have to take on a student loan at these schools.

A few new proposals are calling for making college free nationally—either for two years or all four. But experts say it could be some time before we can entirely say goodbye to tuition bills on all schools across the nation.

In the meantime, there are some places where college is already free, either for all students or those who fit certain criteria. So if you want to avoid ever signing your name to a student loan, you might add these schools to your list.

Programs that make students earn their keep: Those enrolled at Alice Lloyd, Berea, and Deep Springs colleges work to pay their full tuition—at Deep Springs, on the school ranch and farm.

Programs that reward locals. A program called Tulsa Achieves offers every high school graduate from Tulsa County, OK with at least a “C” average a full ride on tuition and fees at a local community college, local tax revenue. A local oil company pays all tuition and fees at any college or university for graduates of El Dorado High School in Arkansas. And anonymous donors do the same thing for students who attend public kindergarten through high school in Kalamazoo, Mich., and go on to a Michigan public college or university.

Programs that reward service: The U.S. military, Navy, Air Force, Coast Guard, and merchant marine academies charge no tuition for students who are accepted and serve a military term or time at sea. CUNY’s Teacher Academy gives a gratis education for education students who graduate and teach at least two years in the New York City public schools.

Programs that seek talent: The Curtis Institute of Music is free for students who pass a demanding audition, and Webb Institute for a handful of the most promising engineering students. The Macaulay Honors College at the City University of New York waives tuition for applicants who can meet the tough admissions requirements—including an “A” average in high school.

Programs with a religious bent: Barclay College, a bible college, is an example of a religious school that is free.

Programs that recognize need: Very highly selective universities with big endowments have also acted in the last several years to make tuition free for students from families with certain incomes—MIT for families that earn $75,000 or less, Harvard and Yale $65,000 or less, and Columbia, Cornell, Stanford, Duke, Brown, and Texas A&M $60,000 or less.

__________

This story was produced by The Hechinger Report, a nonprofit, nonpartisan education-news outlet affiliated with Teachers College, Columbia University.

Related stories:

Colleges try to speed up pace at which students earn degrees

Testing your way to a degree

Residents are crowded out of college by out-of-state and foreign students

Just as it wants students to speed up, government won’t pay for summer courses

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