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March 20, 2007 - Image 5

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The Michigan Daily - michigandailycom

FI T AID

With federal financial aid
shrinking, credit card debt
spiraling and private lenders
cashing in on tuition hikes,
student finances are in need
of resuscitation.

Tuesday March 20, 2007 - 5
T ~Pro a
4
i
ILLUSTRATION BY ALEXANDER HONKALA

Federal aid not much help

Financial independence

Students shouldn't deceive them-
selves; the federal government doesn't
understand the realities of college life
today. The fat cats in Washington D.C.
- like President Bush, Speaker of the
House Nancy Pelosi and Sen. Ted Kenne-
dy (D-Mass.) - have never called Ramen
Noodles, mac 'n' cheese and Doritos a
three-course meal, and they didn't work
to pay for their private educations.
Their lack of concern is clearly shown by
the $12.5 billion reduction in the financial
aid budget in 2006. With the war in Iraq
becoming increasingly expensive, students
have little reason to believe the cuts in
funding will be reversed any time soon.
OK. Maybe calling politicians fat cats
fell out of America's vernacular some-
time around 1925, and maybe the govern-
ment cares a little bit. But politicians in
the federal government have continually
neglected the concerns of students, espe-
cially with regard to the increasing cost of
higher education.
Although the government stresses the
need for an educated workforce, it stands
by as tuition prices increase exponential-
ly and allows financial aid to crawl slowly
behind. So ifyou want to know why you're
going to be an indentured servant to the
bank for the next 20 years, your problem
is probably a federal one.
At the heart ofthe federalgovernment's
inability to adequately help students pay
for college is the Free Application for
Federal Student Aid, better known as
the FAFSA. Because it attempts to cre-
ate a standardized equation for need,
the FAFSA neglects the individual cir-
cumstances that each student faces. This

standardized method leads to expected
family contributions that are inflated
and unrealistic for most families because
it fails to account for credit card debts,
the actual amount a parent contributes to
the student's education and extraneous
household costs. Even worse, estimates
suggest that between 60 and 90 percent
of students fill out the information on
their FAFSAs incorrectly - and under-
N
-
A' n omLUsa.
& C
standably so. Most students don't know
what their net worth is, and the explana-
tion on the website isn't exactly a simple.
But the problem doesn't end there. The
financial aid resources the federal gov-
ernment allocates for students are mea-
ger at best. There's no better example
than Pell Grants - need-based aid that
does not have to be repaid. Until the Pell
Grant maximum increased to $4,310 in
February, they hadn't seen an increase
since a $50 extension in 2003.
When you consider that an economy

triple from University Housing is just
less than $7,000 per year, the actual
value of these grants is limited at best.
More surprisingly, Pell Grants have a
"tuition sensitivity" clause that reduces
the maximum amount a student can
receive if the student goes to a low-cost
school. Basically, impoverished students
get penalized for trying to protect them-
selves against post-graduation debt.
The other option the federal govern-
ment offers is loans. Although interest
rates on subsidized loans were halved
from 6.8 percent to 3.4 percent earlier
this year by the U.S. House of Represen-
tatives, the bill has been stalled in the
Senate and is opposed by the president.
This comes at a time when the Depart-
ment of Education is being questioned for
its role in giving $278 million in subsidies
to Nelnet, a loan company that wasn't
even eligible for subsidies. Among the
other problems with student loans are
the inflated interest rates that the fed-
eral government allows loan companies
to maintain despite their negative effect
on students. Students can always take out
loans from private banks - at astronomi-
cal interest rates.
But there's no reason to get too down
about the federal government's lack of con-
cern. Students just need to use their time
between going to class and working to pay
offtheirloans to organize astronglobbying
coalition. Better yet, students should unite
with the AARP and take the fight to Middle
America and middle-aged America.
Gary Graca is an LSA freshman and
an associate editorial page editor.

When I decided to go to law
school, I was aware that
was entering an academic
marathon designed to separate the
"Law and Order" fans from the con-
stitutional law obsessed. But even
watching friends struggle through the
processtheyear before didnotprepare
me for what was to come. The almost
nine-month pro-
cess turned out
not only to be a
marathon, but a
marathon with'
hurdles.
First came the x
LSAT. If I could
only master logic
games, the hard-
est part will be AMANDA
over, I thought. BURNS
That was true
until I began
writing my personal statement. If I
could only sum up my life and sepa-
rate myself from thousands of other
candidates in 700 words, the hardest
part was to be over. When I was final-
ly accepted, I was sure I had crossed
the last hurdle. Then I was hit with
the maze of paperwork and automat-
ed online systems that make up law
school financial aid.
Thanks to help from my parents,
I will be leaving the University with
very little loan debt, but like many stu-
dents, I will be paying for grad school
on my own. Having never possessed
more than a few thousand dollars at
a time, I cannot comprehend the vast
amount of debt I am about to accrue. I
am sure if anyone knew ahead of time
what owing $150,000 felt like, there
would be fewer lawyers in the world.
The one thing I was sure of was
that I had to re-file my FAFSA. Luck-
ily, the federal government recog-
nizes my independent status, so the
process was relatively painless. My
investment dividends? Zero. Trust
fund income? None. Farm property
profits? No again. Dependents? Thank
god, none. It turns out my entire fis-
cal portfolio is contained in my ever
dwindling checking account.
My non-existent expected contri-
bution that the FAFSA computed will
help me qualify for federal Stafford
loans, which come in the subsidized
and unsubsidized varieties. Unfortu-
nately, the maximum amountgrad stu-
dents can borrow per year is $20,500,
which means the remaining $35,000
per year will have to come from other

sources. Law schools have financial
aid programs that provide need-based
grants, but as I began to fill out the
forms, I realizedthat itwouldbe along
time before I would be able to cut the
financial ties to my parents.
Answering yes to any one of the
following questions requires law
students to provide copies of their
parents' taxes as well as complete a
parental financial profile:
A) Are you a student under 30?
B) Have your parents claimed you
as a dependent on their taxes in the
2005,2006, or do they plan to claim
you in 2007?
C) Have you received any financial
assistance from your parents in the
last year?
I am hard pressed to think of an
undergraduate student that would
be considered independent following
those guidelines, and Iknow many peo-
ple who are paying for school on their
own. I understand that with so many
students applying for aid, law schools
must make difficult decisions. But for
students who are truly independent,
their parents' financial information
can put them at a large disadvantage.
Beyond just providing copies of
tax forms, there is the College Board
online profile, which examines stu-
dents' parents' finances with a micro-
scope. The questions begin easy, such
my father's gross adjusted income.
But quickly they proceed to the min-
ute, like outstanding electrical appli-
ances debt, make, model and year of
my parents cars.
To complicate matters further,
schools ask that the profile be filled
out as soon after Jan.1 as possible, yet
they require information from 2006
taxes, which many people have notyet
filed. It is now weeks after the March
1 financial aid deadline and I am still
trying to gather tax forms and esti-
mate earnings for 2006 and 2007.
I am starting to believe financial
aid is a survival of the fittest scenario
in which only those who were born
to file in triplicate survive (Bo Shem-
bechler's quote "those who stay will
be champions" comes to mind). For
now, I can only look forward to the
age of 30, when although I will have
already been a lawyer for five years, I
will finally be independent in the eyes
of the financial aid department.
And it'll be about time.
Amanda Burns can be reached
at sammylyn@umich.edu.

The Michigan difference?

Harvard charges tuition not because
it has to, but because it feels like it. That,
at least, is an argument some critics of
the world's richest university have used.
Harvard's endowment, which was valued
at $29.2 billion at the end of the last fis-
cal year, is greater than the gross domes-
tic products of about 100 countries and is
arguably large enough for Harvard to be
free for all undergraduates.
Pr te ___.
r c
"Stad;Om reai- on D
1 Q
-- St,te r rcA stn
.Reseo c.'
F* C
As things stand now, Harvard already
is free for students whose families make
less than $40,000 a year. Even a full
tuition scholarship covers only two-
thirds of the cost of a Harvard education,
but with the rest covered by endowment
income, we shouldn't feel too bad for the
budding masters of the universe in Cam-
bridge.
That's an extreme example, of course.
But the story isn't much different at other

Ivy League schools - or at a host of other
private institutions. Long reliant on
wealthy alumni and other private donors
to supplement revenue from tuition,
most private universities have built siz-
able endowments.
The story is a bit different at state
schools. Historically, most state univer-
sities were founded and funded on the
premise that the public would provide
the bulk of the necessary funds. Between
federal land grants and state taxation,
public funds covered most of the start-up
and operational costs in the early days of
public universities; at some schools, such
as the City College of New York, higher
education was long provided to students
free of charge.
Such generous support for state uni-
versities is now little more than a his-
torical curiosity. There's an increasing
societal consensus in recent decades that
the costs of higher education should be
borne by those who benefit most directly
- the students themselves. Additionally,
the continuing appeal of anti-tax, anti-
government political rhetoric ensures
that politicians who are looking to cut
something in their state's budget to fund
yet another round of tax cuts will invari-
ably slice away at appropriations for pub-
lic universities.
The effect has been drastic, particu-
larly at elite public universities like the
University of Wisconsin at Madison, the
University ofVirginia - and our ownuni-
versity. While the nominal sticker price
of tuition at these universities is less than
tuition at comparable private schools (at
least for in-state students), public univer-

sities that lack large endowments and an
engrained culture of alumni giving sim-
ply can't compete when it comes to finan-
cial aid. The paradoxical result, for many
students, is that after considering finan-
cial aid packages, a private university
with a sticker price of perhaps $33,000 a
year is often cheaper than a comparable
state school.
Public universities are probably doing
their sincere best to offer financial aid.
The University of Michigan, for instance,
makes sure to increase financial aid
funds along with each tuition increase,
and its administrators are proud of the
M-PACT program to replace some loans
with grants for low-income students.
The amount of funds available, however,
makes M-PACT look more like a public
relations effort than a serious financial
aid program.
Stymied by this lack of resources, pub-
lic universities are fighting back the only
way theyknowhow -by takingafter their
richer private counterparts in launching
huge capital campaigns. Our university
is nearing the completion of its $2.5-bil-
lion Michigan Difference campaign. The
University of Virginia recently launched
a $3 billion campaign of its own.
Eventually, these "privately funded
public universities" may build up the
endowments needed to offer more com-
prehensive financial aid. But for many of
today's students who will graduate with
tens of thousands of dollars in debt, that
day won't come soon enough.
Christopher Zbrozek is an LSA senior and
a member of the Daily's editorial board.

_ - - oticeA b-oks: B"A'a
FtoetoAnsy
l 1

Ever wonder why you don't
qualify for aid?
flyAMANDA BURNS
The answer may lie in the way the government computes your
expected family contribution. Using relatively few factors, the govern-
ment decides how much money each student will have available in the
coning year. So how exactly is the EFC calculated? According to "1001
Ways to Pay for College," the basic formula is as follows:
Parents' adjusted gross income X (up to 47 percent) +
Parents' assets X (up to 5.56 percent) +
Student's income X (up to 50 percent) +
Student's assets X (35 percent)=
Expected Family Contribution
Once your EFC is determined, the government subtracts it from the
total cost of attendance at your university. The remainder is your finan-
cial need. This may sound fair at first, but many students' EFC is vastly
overestimated, making it nearly impossible to receive aid.
A 1999-2000 study by the Department of Education concerning EFC
averages found that for families making $45,000-74,999 per year, the
average EFC was $9,000. Families with incomes more than $100,000
averaged EFCs of $29,800. Assuming that families can or will spend up
to 30 percent of their yearly income on their child's education is opti-
mistic at best.
This is especially relevant at our university where, in 2005, 55 per-
cent of students came from families making more than $100,000 per
year. For in-state students in this income bracket, the government
would subtract the EFC from the estimated $20,973 it costs freshmen to
attend the University. The result is thousands of dollars in excess funds.
The fact that the EFC does not consider how much parents are actually
contributing means students from wealthy families who are paying for
school themselves must either accept the limited unsubsidized Stafford
loans or turn to pricey private lenders.
Books like "1001 Ways to Pay for College" suggest several ways to
lower your EFC, such as planning stock sales carefully, restricting how
much money is put in the student's name and storing money in retire-
ment funds. But there has to be a simpler way to create a more reason-
able EFC, perhaps even one that mirrors reality.

The plastic generation

On college campuses, credit cards are
about as ubiquitous as iPods and Motoro-
la Razr cell phones. Whether it's for $300
worth of textbooks or an $8 salad, an
increasing number of students flash Mas-
terCard instead of the cold hard cash.
Unfortunately, the attractive get-now-
pay-later aspect of credit cards comes
with a very ugly downside - mounting
student debt.
The numbers confirm what most stu-
dents already know. The Center for
American Progress, a Washington-based
think tank, reported the median debt for
young adults in their 20s rose to $21,070
in 2004, a 33-percent increase from 1995.
A study by Nellie Mae, a major student
loan provider, found that three out of four,
college students own credit cards, and
more than 40 percent of students own at
least four cards. In 2003, Nellie Mae also
found that 31 percent of college students
have credit card balances between $3,000
and $7,000. Paying down thousands of
dollars in debt is not easy, but often inter-
est rates make the task seem impossible.
Many cards that cater to students do so at
astronomically high rates - often above
20 percent.
The numbers above hardly paint the
picture of financial freedom and liberat-
ing personal spending that credit com-
panies panhandle to naive undergrads
in their vigorous campaigns to reach
out to the college-age population. With
their lack of financial experience, gener-
ally low level of financial knowledge and
tendency to overspend, college students
are a lucrative target for such compa-
nies. Credit card marketers have become

sneakier and more aggressive. They
reach out to students by phone, e-mail,
snail mail and even by giving away free
T-shirts or pizza.
In front of a bookstore at the Univer-
sity of California at Berkeley, a marketer
for Discover Financial recently used the
promise of free pizza to sign students
up for credit card accounts without dis-
closing interest rates or terms. The mar-
keter instructed the students to fill out
the forms. If accepted, they would get
the card and terms in the mail later on.
Many hungry college students blindly
registered for the card, but the satisfac-
finn of a free slice of pizza quickly fades
in the face of high interest rates, expen-
sive monthly fees and thousands of dol-
lars worth of debt.

Credit card companies are becoming
more successful at manipulating student
inexperience becausemanystudents donot
know how to responsibly manage money.
This, however, is not entirely students'
fault. The University should help develop a
financially savvy student body. The Career
Center helps students with resume writing
and job searches. The off-campus hous-
ing office helps students transition from
dorm life to off-campus properties, yet the
University lacks a resource that provides
information and tips concerning prudent
money management.
Understanding how to responsibly
manage credit is just as important of a
skill as navigating the housing market
and succeeding in a job interview. Stu-
dents should have access to financial
advisers to explain terms like "revolving
debt" and help them wisely select a credit
card company. Many students lack basic
fiscal knowledge, including what ele-
ments contribute to a credit score. Even
creating a financial section in the stu-
dent resources section of the University's
homepage would be helpful.
Also, let's not forget to use the other
resources we have. Why not tap into the
vast knowledge and resources of the Ross
School of Business's professors and MBA
students? This is yet another way to reach
out and help students wisely handle their
money matters. In the face of designer
jeans and dinners out constantly running
up your credit card bill, money manage-
ment skills can truly prove priceless.
Rachel Wagner is an LSA junior and a
member of the Daily's editorial board.

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