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.