Help for Families to Become Smarter About College Aid
As the amount of student loan debt steadily increases, there is renewed effort to motivate families to become smarter about matters related to finance and more informed about the choices they make. This particularly relates to college aid.
The White House, jointly with ten universities, last week made a commitment to offers regarding finance related aid, from the 2013-2014 school years. The Federal Government also declared that conditions related to income-based repayment plans, for Federal student loans will be eased for “responsible” graduates. The average debt on student loans and college aid is reported as being $25,000 for each college graduate.
It was stated that there is often little to distinguish between finance loans, scholarships and the confusing verbiage. This makes it difficult for a comparison in college costs.
The ten universities committed to the new plan, include Arizona State and Vassar. Beginning next year, they will address college aid letters to students, which clarify annual college costs and finance options. This forms part of the innovative “Know Before You Owe” initiative from the Consumer Financial Protection Bureau. Public comment is being requested, which could be used as a future model for college aid communication.
The IRS and Treasury Departments are reforming application procedures for income based student loan, college aid, repayments. These are limited to 15% of discretionary income at present, for on-time payments. From 2014, the limit will be reduced to 10% for qualified borrowers.
Parents and students have been warned by the Federal Trade Commission, of scholarships that promise college aid that is “guaranteed”. This is a temptation for those who are cash restricted and seeking college aid. However, the FTC has stated that this type of suspect scholarship has been visible since the mid 1990’s and is active during economically difficult times.
It is usually recommended that scholarship grants and Federal college aid are the preferred methods. Criticism continues regarding private student finance arrangements, especially those offered by banks and similar institutions,
It is generally perceived that private student loans should only be considered as a last resort. In comparison with Federal loans; they are inclined towards higher variable rates, less protection for borrowers and restricted repayment options.