Sunday, December 8, 2013
By ELIZABETH L. BORDOWITZ
AUGUSTA - Richard Vedder's commentary "Save for college? You do the math," published in the July 14 Maine Sunday Telegram, contained inaccurate and unhelpful information for Maine families responsibly trying to save for college, negotiate the financial aid process and invest in their children's future.
College financial aid offices are equipped to help families negotiate an aid package that won’t leave graduates like these with a mountain of debt, says the head of the Finance Authority of Maine.
2009 File Photo/The Associated Press
Without any factual basis and, indeed, contrary to publicly available information, the author irresponsibly promotes the myth that families who save for college will be punished by college financial aid offices with reduced award packages.
This is untrue and counterproductive as we try to increase the family savings and college attendance rates in Maine.
As the state agency responsible for administering Maine's higher education finance and college savings programs, the Finance Authority of Maine is acutely aware of the rising cost of college education and the ever-increasing loan debt incurred by students.
We attend hundreds of events each year to explain the financial aid process, promote financial education and encourage higher education attainment.
The Telegram's decision to run the Vedder piece and thereby perpetuate falsehoods and discouraging savings was unfortunate and does not help address families' college finance concerns.
Indeed, Maine families should continue to save for college to reduce future debt, complete the Free Application for Federal Student Aid as well as research federal, institutional and private aid options as they consider higher education options for their children.
Vedder falsely contends that families who save for higher education will end up paying much more for college than families who don't.
To support such a proposition, he uses fuzzy math, comparing just family savings. That is not how financial aid is calculated.
A federal formula, called the "expected family contribution," is used.
We put two identical families through the federal formula, with the only difference being that one family had zero in savings while the other family had saved $100,000. The difference in financial aid eligibility for the family who did save was only $2,600 -- an amount that will be more than made up for by reduced borrowing and interest payments.
The federal financial aid formula is public and available online.
Here are a few important facts about the federal formula:
• First, the formula completely excludes certain assets, including a family's primary residence and retirement funds.
• Second, the formula includes an asset protection allowance, the amount of which is based on parent marital status and age, which protects a portion of assets from being considered available.
For example, a married couple, the older parent age 46, would have $37,100 of assets, beyond their home and retirement, protected.
• Third, families that have an annual adjusted gross income below $50,000 will usually qualify to have their assets excluded from the calculation.
• Fourth, even for families with high incomes, only a very small percentage of assets is considered, and never more than 5.6 percent of their assessed assets.
The truth is that income, not assets and savings, is the driving factor when awarding financial aid. When one sees evidence of different award amounts for students from families who appear to have the same income, it typically is because of other factors like the number of family members, how many children are in college and often, the individual merits of a given student -- not the family's savings or assets.
Vedder admits he relies on anecdotal evidence to support his supposition that students who save are penalized. The truth is that the facts simply do not substantiate his claim.
Vedder also wonders why the federal government doesn't abolish the Free Application for Federal Student Aid.
The application is an evolving tool that has improved and become considerably more user-friendly. It serves the necessary purpose of uniformly identifying students nationwide with the most financial need to distribute limited federal financial aid (taxpayer dollars).
It pays to do the research necessary to understand financial aid options. Net Price Calculator is a useful online tool and is required to be available on each school's website.
The reality is that some schools have more aid to offer than other schools, and Net Price Calculator can help families learn early on which schools offer what types of financial aid.
Families should investigate a variety of schools to find the best academic and financial match for their student.
Elizabeth L. Bordowitz is CEO of the Finance Authority of Maine. More information is available at www.famemaine.com.