Monday, April 20, 2009

Inside the Mind of the Financial Aid Administrator

Have you ever wondered, just what your Financial Aid Administrator was thinking? Especially once you received your financial aid award. I have worked for 20 yrs as a financial aid administrator and can take you inside the mind of the FAA.

I can tell you that FAAs are a dedicated lot that see their mission as assisting students to attain their academic goals through financial aid, while keeping student debt at a minimum. Financial Aid philosophy is to award scholarships/grants first, followed by work study, then loans as a last resort.

Students must demonstrate need by completing the FAFSA. Once need is determined then, the FAA can package using the above mentioned philosophy. How much of each type of aid is awarded is based on a number of factors: the criteria for each separate scholarship, grant, work study or loan. In the case of scholarships, grants and work study, what funding is available at the time package is being created is also a major factor. Aid is given on a first- come, first-served basis. So if you apply late or don’t get all your required documents in to the financial aid office quickly, you may end up with a less generous aid package.

Counseling students against excessive borrowing is an integral function of any financial aid office. There have been countless times when I sat a with student who had requested a loan that I felt was not necessary to: 1) determine why the student felt the need to request a loan or loan increase, 2) explain his/her options and 3) discuss future education plans, such as grad school (grad students rely almost exclusively on loans), and how this request will impact those plans. Loan entrance and exist counseling is required at all colleges. And although students roll their eyes at the mention of loan counseling and drag their feet to comply with the requirement, it should be viewed as an important planning tool and consumer loan education opportunity.

It is also important to note that if a borrower is eligible for a loan through the Federal Family Education Loan Program (FFELP), a FAA is bound by federal law to certify the loan, unless there is knowledge of fraud or intent to commit fraud by the borrower with respect to the FFELP loan. So FAA's are not pushing loans to drive up student debt, quite the contrary. In fact, their Colleges’ ability to participate in the FFELP loan program is tied the annual Cohort Default Rate for Student loans. A high default rate will cause the US Department of Education to rescind a school’s ability to participate in the FFELP programs and as a result none of the students who attend a college banned from FFELP can apply for those loans. So it is in the FAA's interest to keep borrowing at a minimum and ensure that borowers receive the loan counseling.

Unfortunately there is never enough scholarship/grant or work study funds available to FAA's to fully fund students' need and loans are generally included in an award letter. This is the eternal frustration of any financial aid administrator.

As far as educational loans are concerned FAAs always recommend that students first apply for Stafford and PLUS loans due to the lower interest rates as compared to personal loans or private educational loans. Most students do not have a credit history and would not be eligible for a personal or private education loan without a co-signer and/or a high interest rate. These are credit based loans, meaning that the borrower would need a good credit score or a co-signer with a good credit score. The repayment is generally non-deferrable and require immediate repayment while the student in is school and generally not earning enough to repay the loan.

As the financial industry seized up in the last two years, lenders of private student loans have tightened the credit requirements and increased the interest rates. Fewer students and parents are eligible for these loans.

Some may feel that FAA’s are unwilling to give a comparative analysis of federal loan rates. Are you aware that there are over 1,000 lenders that participate in the FFELP (Federal Family Loan Programs) programs? It is more than a bit difficult for schools to do a comparison of all lenders with that many participating in FFELP.

Many schools put together a list of 3-10 lenders that they assess annually through a process referred to as Request For Information (RFI). Even this has become more difficult, as numerous lenders have exited the FFELP program or changed their borrower benefits to address the changing financial environment and federal legislation over the last two years. Schools may have a Preferred Lender List for FFELP loans and/or Private (Alternative) Loans. It is important to note that students and parents are not required to utilize a lender from the schools' lists, but it is there if the families are looking for options or guidance.

I hope this gives you a better insight in to the minds of and appreciation for financial aid administrators. For with out them, many dreams would go unrealized.

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