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Mark Kantrowitz
interviewed by Brian Hecht on September 30, 1995
"There's always money available..."
Mark Kantrowitz is the author of the Prentice Hall Guide to Scholarships for Math and Science Students and he also runs the Financial Aid Information Page on the Web.
Tripod: I've always heard it said that there is always money for an education out there, and you've just got to know where to look. Do you agree with that?
MK: Yes and no. There's always money available in the sense that any US student is eligible for the unsubsidized Stafford loan. So there's always financing available. But if you're the kind of person who thinks of "financial aid" as being only gift aid -- scholarships, grants, fellowships, and things like that -- it isn't necessarily the case.
At any university, they calculate your financial need: based on computing an estimate of the amount of money you and your family can contribute to your college education and subtracting that amount from the total costs of attending the school, including tuition, room and board. Many schools claim to meet full or close to full demonstrated need through a combination of grants, loans, and employment. So from that point of view, anyone should be able to financially afford to attend school. Of course, their assessment of the amount of money that your family can afford to contribute will probably be a painful amount.
Tripod: But there's differences in assessments between different schools. Is that a function of just how well endowed the school is, or is that a function of the procedures by which they calculate your need?
MK: There are differences in procedures. The Free Application for Federal Student Aid, the FAFSA, uses the "Federal Methodology". The Federal Methodology does not include the value of your primary residence if you own a home. But many private schools use their own formula -- their own methodology -- that does take the net value of the home into account because they consider it to be an extra resource that is available to families who have their own home.
Also, different schools may have different budgets for financial aid. All these need-analysis systems aren't really accurate assessments of how much your family can afford to pay. They're basically rationing systems. So different schools ration in different ways.
Tripod: Is there anything a student can do to make him or herself a more attractive candidate for financial aid -- whether it's by juggling family finances or by stressing certain merits?
MK: For private scholarships, obviously if you become a very talented student you will qualify for more private scholarships. You will also make yourself more attractive to some of the schools that are less popular. Many schools that are not the Ivy League or top ranked tend to offer merit scholarships which are based on academic, athletic, artistic, or other kinds of talent in order to attract talented students to the school. Such scholarships are not based on need. So if you become more talented, they will be more willing to offer you financial aid as an incentive or lure.
As far as juggling your finances to make yourself more eligible for need based aid, it is possible to do that. There are a variety of tricks that essentially take advantage of loopholes in the need analysis formulas. For example, to qualify for more federal aid, if you own a home -- since the value of a home is disregarded by the federal needs analysis methodology -- you might take your cash assets and use them to pay off your mortgage. By doing this you're taking cash, which is a visible asset -- one that is included in the need-analysis process -- and you're making it an invisible asset by putting it into the mortgage.
Another example is the parental contribution -- the assessment of the amount of money your parents can afford to pay. The parental contribution is fixed no matter how many children are in school. So, if you have a sibling who's in school at the same time as you, you'll be eligible for more aid. Suppose the school's assessment is that your parents can afford to pay $20,000. If there is just one student in school, then that $20,000 is subtracted from the cost of education -- say $25,000 -- leaving a need of $5,000 for the student. If there are two students in school, the parental contribution is split in two. The assumption is that the parents can afford to pay $10,000 for each student. Subtracting $10,000 from $25,000 leaves a need of $15,000 for each student. So if you're going to have children, it's better to have twins than to have them separated in age by four years.
Tripod: We always hear about these situations where schools get into financial aid bidding wars to get a desirable student. Does that really happen?
MK: No, it doesn't. As a general rule, most highly ranked schools will refuse to get into a bidding war. However, there might be some information that the family provided to one school and not to the other schools that led to a difference in the financial aid package. Many schools, even Harvard, will say, "Give us this additional information and we will re-evaluate your financial aid package."
In fact, any school will re-evaluate your financial aid package if there is a change in your family circumstances -- say, a parent becomes unemployed or, God forbid, dies. If you provide that extra information to the financial aid office, they will re-evaluate your financial aid package and maybe change the amount of aid.
Thus schools do not negotiate, but when there is a great disparity in the aid packages from different universities, it is often a signal that some information was not provided.
Tripod: Here's a few questions about politics and financial aid. I know lots of students are scared that Congress is going to drastically cut back public, federal financial aid. Are these fears justified?
MK: Yes.
Tripod: Tell me about it.
MK: The Republicans are trying to balance the budget and they're doing it indiscriminately. They're cutting what are essentially investment programs -- I consider financial aid to be investment programs -- along with the entitlement programs. There has been a lot of student opposition. The Alliance to Save Student Aid has been doing a lot of lobbying and they're preventing some of the "worser" options from coming into play. But still, both the House and Senate passed legislation calling for these cuts and now they're trying to resolve the differences between the two pieces of legislation. At the bare minimum, there is going to be a cut of $10.4 billion over the next seven years in the amount of money the federal government expects to provide for financial aid.
I should clarify that. There have been studies which have shown that the number of students applying for federal loans is going to increase over the next seven years. So the total amount of loans offered by the federal government will increase, but they're cutting $10.4 billion from the amount they would have spent if this legislation hadn't been passed.
Tripod: Do you predict that the effect of this will be that fewer students will be able to afford college or ... ?
MK: Yes. It is going to increase the cost to the student of getting these federal financial aid programs. For example, one of the proposed cuts is the elimination or reduction of the grace period. With a subsidized Stafford, the government pays the interest while the student is in school, and for a six month grace period after the student graduates. They are proposing to eliminate that grace period. So you would start paying interest immediately upon graduation. Another change is an increase in the interest rates that students pay. There's also been talk about charging the universities a fee of either two percent or 0.85% of the value of any student loan that any of their students get. This is a very bad idea it would be taxing universities on something they have absolutely no control over. Obviously, if universities are paying two percent of the value of the loan, they're going to have to come up with that money from somewhere, either by reducing their other aid or by increasing tuition. So ultimately the students and their families are going to pay.
Tripod: In today's political climate, I guess especially in California, are scholarships based on race or ethnicity in jeopardy?
MK: Some, possibly. Scholarships based on race or ethnicity that are provided through private sources were never in jeopardy because the government can't touch that. What is in jeopardy is scholarships that are granted by the university solely based on these kind of criteria -- by ethnicity or a minority status. Any university that receives federal aid -- which is most of them -- has to comply with the Department of Education regulations. And the Supreme Court case said you can only offer a scholarship that is restricted to a particular race if there is evidence of previous discrimination within your university ... You can't do this as simply a means of attracting minority students to your school. It's got to be a remedy to a previous problem.
Tripod: You mentioned the grace period before; what happens if you finish college saddled with debt and you just don't have the means to make your payments, are there any alternatives?
MK: The worst thing you can do is default on your loans, because that has all sorts of bad implications for the future ... Your tax refunds could be withheld, your credit history is ruined, you will have trouble getting auto loans, mortgages, even credit cards. So if expect that you are going to have trouble making your payments, a couple months before you would wind up defaulting -- while you're still making your payments -- you should contact the lender or the servicer of your loans and ask them what options you have.
There are a variety of options. For example, there are deferments, in which the lender will allow you to reduce or eliminate your payments for a specific amount of time in certain circumstances... Besides deferments, there are also forebearances which are very similar to deferments except you still have to pay the interest on the loan, even if you're not paying money towards the principal. Forbearances are for situations where you don't qualify for a deferment.
Another option is to consolidate your loans. Most of the federal loan programs require repayment over ten years; when you consolidate the loans you can sometimes get an extended repayment period beyond the ten years. When you extend the payment period it decreases the size of your monthly payments. Of course it also increases the total amount of money that you will be repaying. Also, consolidating your loans will reduce the number of checks you have to write each month, by replacing several lenders with a single lender.
Tripod: I know a lot of people are confused by the debt service like ELSI or Sallie Mae. They get these bills and they don't know where they're from. Can you very briefly explain just how those work?
MK:There are two different kinds of federal loans. There's the direct loan program and there's the old bank-based loan programs. With the direct loans, the federal government provides money to the universities to make loans to the students. With the bank-based loan programs, the federal government provides guarantees against default to the So these are extremely low risk loans for the banks. The federal government also subsidizes the interest, to some extent, and pays a servicing fee to the banks, so such loans are quite profitable for the banks.
The banks can decide to sell your loan, just like they can sell a mortgage, to some other bank or to a loan servicing organization. Likewise the universities can hire a loan servicing organization to take care of the administration of collecting the loan payments and so forth. So, you may originally get your loan through a particular bank, but that bank may decide later to sell it to a third party bank or servicer. If you are encountering problems with your loans, there are two organization that you should contact: One is the servicer of the loan and -- if you are having trouble with them -- you should contact the original bank that issued the loan ... You can also contact your university's financial aid office, especially if you don't know who the servicer of your loan is or who the bank was, and they're responsible for helping you with that.
Tripod: That's good to know. I know people who have had some bad experiences with servicing organizations. And just to wrap things up, can you recommend some of the best resources for people who are interested both in finding out, generally, about financial aid and finding actual resources?
MK:The best resource for financial aid information on the Internet is my Financial Aid Information page. It is accessed by more than 3,700 students a week which is over 200,000 students a year, and has become the de facto central resource for financial aid information on the Internet.
On my web page, I've added a section called "Mark's Picks," which is the best resources for financial aid on the web. There's a half-dozen to a dozen really useful resources that are some of the most popular resources.
Tripod: Let me wrap this up by asking you how this became your passion.
MK:Ten years ago I attended a program for very bright high school juniors in science and mathematics, the Research Science Institute. The next year I returned as a counselor, and as a counselor I compiled a list of 10 to 20 scholarship programs that every student at this program should apply for -- things like the Westinghouse Science Talent Search, the Duracell program, ... there are a variety of competitions and scholarship programs. Over the years the list grew. I kept on getting feedback from students and I also came back every couple years and gave a talk about financial aid and winning scholarships. And about five years ago, Prentice Hall got in contact with us and asked about us possibly writing a book based on our list, which was up to about 100 programs at the time. We decided write the book ... The book's been doing fairly well, and a portion of the royalties from that book goes to the foundation that runs RSI -- 25 percent of the royalties.
You can e-mail Mark at [email protected]
... or view his Financial Aid Information page at
http://www.cs.cmu.edu/afs/cs.cmu.edu/user/mkant/Public/FinAid/finaid.html
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