Planning for college costs is a burden and point of stress for any family with college-bound kids, but for separated and divorced parents the process can be an added point of contention and stress. Applying for financial aid and student loans has become an increasingly difficult process, and few resources are made available to guide families through it successfully. With that said, divorced parents and students can still get on track by openly communicating and planning to approach the process of navigating their investment in higher education more effectively and confidently.
Start the Conversation Now to Develop Your Plan
Communication is an important first step for divorced parents to strategize how they’ll tackle college costs and determine who is responsible for what once the bill arrives. While it can be difficult for separated parents to project all the costs at each college on their student’s list, there are steps to take now to prepare ahead.
Net Price Calculators on college websites don’t provide projections for two household families. To navigate the final costs, parents and students can research which colleges will review information from both households by visiting their financial aid websites or calling the financial aid office directly. Divorced parents may want to discuss how comfortable they are sharing their financial information with one another during this time. While the application process does not require parents to do so, understanding the options now will prevent arguments later on. Sharing financial information during the college planning process does not impact child support or custody.
Get Ahead of Upcoming Changes to FAFSA
The Free Application for Federal Student Aid (FAFSA) is the form you need to fill out to get any financial aid from the federal government to help pay for college. For divorced parents, financial aid eligibility is only determined by the income/assets of whoever the student lives with most at colleges that use the Federal Methodology (which is most public colleges and a large percentage of private colleges). Only one parent can fill out the FAFSA, and that is usually reserved for the custodial parent/s (stepparents are included) to determine financial aid at most schools.
FAFSA changes that will impact divorced families are on the horizon for the year ahead. Starting in 2022, the parent that provides the most financial support is going to be the one that is supposed to complete the FAFSA and therefore determine financial aid eligibility, and where the student lives won’t be a considering factor anymore. This is likely to hurt more people than it will help, and it complicates things when you consider when one parent pays child support, but the other parent pays a mortgage, provides meals for the student, buys clothes, etc. Starting the conversation now to get ahead of these upcoming changes will help alleviate problems down the road. There are plenty of free resources to help you keep track of these evolving changes and what they mean for your family’s current situation.
Colleges that use the Federal Methodology (FM) to determine eligibility for financial aid will not consider income/assets from the non-custodial household for divorced/separated families. The eligibility is solely based on the custodial parent/s (again, stepparents are included). Many private colleges and state colleges that use the Institutional Methodology (IM) require information from both parents’ households, determining financial aid eligibility based on both the custodial and non-custodial parent. There are exceptions though; for example, Vanderbilt is a school that uses the IM method, but only requires information from the custodial household to determine aid.
While IM/CM are “not supposed” to count the income/assets of stepparents, they typically do. This is a well-kept secret with most of the IM/CM schools so be sure to do your research at the beginning to uncover which schools are using which methodology and, more importantly, push back if you feel these colleges have wrongly included stepparents in the equation.
When your financial aid package arrives, keep in mind that colleges are a business, and as with any large investment (such as buying a house or a car), you can negotiate. Many students and their parents don’t realize they can go back to ask for more money in their financial aid package.
Understand Your Borrowing Options
While there is a lot of buzz right now with the potential for President Biden to forgive student loan debt, these potential actions shouldn’t be a consideration in how you approach your student loan options. It’s unlikely we’ll see another clean slate given to students in 5, 10, or 15 years from now. But that doesn’t mean your student loan has to have crippling effects once graduation day arrives. Talking through who will have the most responsibility to pay back this loan, the option for parents to co-sign, and more will help drive the decision on which route to take.
Private student loan rates will vary from 3% to 15%, and those rates are usually driven by the co-signer. If you have great credit, private loans may provide the lowest rate. But where private loans may have lower rates overall, they are typically the least flexible for repayment plans. Federal loans may have higher interest rates (not always), but they offer the most flexibility in repayment terms which helps to protect the borrower in case of job loss or another event. In many instances, the forgiveness options available in federal loans payment plans do not exist in the private sector as well.
Divorced parents don’t need any more stress added from the college costs process. By planning, understanding the financial aid options and how they’re changing, and communicating about expectations when it comes to loan options, parents and students can move through the process confidently.
Source = Matt Carpenter