First, relax...it will be okay...eventually...

I know, it all sounds impossible. But more people are going to college than ever. And while many of them are accumulating debt faster than Congress, you can still get through this without an impossible financial burden. Just remember, that there will likely be no single source of money, you will have to be realistic on selecting the right school, and your major means everything. So, relax and start the journey, one step at a time...

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Saturday, August 27, 2011

College Funding Strategies for Low-Income Families

College Funding Strategies, Low IncomeThe best strategy for low-income families is first, for the student to do well in school. This means a high level of engagement and involvement in the student's school work, from grade school through high school. By keeping school work of high importance in the family and encouraging and rewarding your children, their accomplishments may place them in honors and Advanced Placement (AP) classes (which they may receive college credit for, potentially reducing the tuition bill). The combination of high academic achievement in high school as well as finanical need will allow the greatest award of scholarships and grants. Just make sure to fill out the FAFSA form early and every year your child is in school.

In addition, families can provide for enriching low-cost trips and activities, through Scouting organizations, church activities, and library and museum events. Your local paper is probably full of these events every week.

As the child gets older, they can volunteer to expand their interests and accomplishments. In addition, many volunteer positions can lead to paid positions that can help them earn money for school.

When they are in school, the Federal Work-Study (FWS) program can provide on-campus employment to help in paying tuition. FWS is oriented towards lower-income families, and can provide a convenient, flexible job that may even enhance them in their academic major (such as tutoring and teaching assistant). Beyond FWS, there are other flexible on-campus jobs for students, especially for students with particular skills or certifications (lifeguard at aquatic centers, computer help desk, etc), so cultivate these skills early.

An excellent first step in post-secondary education is to pursue a local regional campus or community colllege for the first two years of school. This is an increasingly popular option (especially through this latest recession), since the tuition is lower, the student can likely live at home, and the quality of education is excellent.


The Pell grant is a Federal program for low-income familes. A Federal Pell Grant, unlike a loan, does not have to be repaid. The maximum Pell grant for each student for the 2012-13 award year remains at $5,550. The actual award depends on financial need, costs to attend school, status as a full-time or part-time student, and plans to attend school for a full academic year or less. The maximum amount is for families with an Expected Family Contribution (EFC) of 4995 or less. In addition, individual schools typically award need-based grants, based on the information you provide in the FAFSA, so carefully look over the financial aid package offered by the schools the student is accepted to, in order to determine your total overall cost. The Federal Supplemental Educational Opportunity Grant (FSEOG) is for Pell Grant recipients with exceptional financal need, and can be valued up to $4,000 a year, based on when you apply, your financial need, the funding at the school you're attending, and the policies of the financial aid office at your school.

There are also federal loan programs that are targeted at low-income families (such as the Perkins and subsidized Stafford student loans) that can provide access to loans below market rates and with favorable terms. There are also opportunities for federal student loan forgiveness when certain conditions are met, such as volunteer work, military service, teaching or practicing medicine and law in certain communities, and working in a non-profit agency. Service in the Peace Corps, AmeriCorps, and VISTA can qualify you for at least partial forgiveness. Students who are in the Army National Guard may be eligible for the Student Loan Repayment Program, which pays up to $50,000 for certain jobs, with a six- or eight-year enlistment. The Public Service Loan Forgiveness Program allows for forgivenes of the outstanding loan balance for certain public service employees who have maintained their loan repayments for 10 years. Also, the American Federation of Teachers has a database of loan forgiveness programs for teachers, and the Department of Eucation's Stafford Teacher Loan Forgiveness Program is intended to encourage individuals to enter and continue in the teaching profession.

Some schools are updating their policies to reduce the tuition burden for low income students (and families) in the financial aid packages that they offer prospective students in their Student Aid Reports. Some of the these practices include (1) a "No Loan Policy", (2) a cap on student loans, (3) assuming no parental contribution, and (4) programs to match the student's Pell Grant as provided by the federal government. Since these practices and program qualifications are still evolving (and vary greatly by school), you should ask the financial aid office at your target schools for detailed information. In general, these approaches are best for students who are interested in (and can meet the entrance requirements of) private schools who can fund such policies through private endowments.

There are other alternatives to loans worth exploring, including an approach of "crowdfunding" where you can either sell your future income potential for funds to pay your tuition, or put together a donation site to raise funds.

Income tax strategies must be carefully considered for low-income families. There are several tax credits (such as the American Opportunity Credit and Lifetime Learning Credit) and deductions (Tuition and Fees Deduction and education loan interest deduction) available at the federal income tax level. These are outlined in another post. While there are some overlapping and conflicting requirements for some of these, most tax preparation software (such as the highly regarded and free TaxAct online program) can help to determine the best approach. In addition, many state 529 Savings Plans provide for state income tax deductions. And remember, your child can be claimed as an exemption on your income tax up to age 23 if they are a student and you provide more than half of their financial support.

From the Sallie Mae study on How America Pays for College 2011, the source of funds used for paying for college by income group is presented.

College funding by income group, student loans by income group
 (click to enlarge image)

In general, low-income families (less than $35,000 annual income) go to lower cost schools, with this difference arising due to lower contributions from parents' income and savings (I call this the "duh!" conclusion). The latest trends show greater contributions from families, however.

By combining this study with the Current Population Survey, 2010 Annual Social and Economic Supplement (US Census Bureau), data on family income can be used to determine the relative burden of paying for college (by source of funds) on families by income group. A family is defined in this study as a group of people permanently living at a particular housing unit, so a family unit could include only independent students.

The results show that there is a much larger burden on families income & savings for low income families than middle or high income families, after all loans, scholarships, and grants are accounted for, even though they attend the schools with the lowest total costs.

Family funds for college, income group

(click to enlarge image)

This only underscores the importance of academic preparedness, maximizing grants and scholarships, picking the right school and major, and good financial planning for low-income families.

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