July 8, 2012

You Are Not Entitled to Financial Aid

Pardon me for a few minutes while I get out my soap box and vent a little bit...

What would you do if I told you that I was making a 6 figure salary and I was surprised that the government wouldn't give me food stamps?

What if I was sitting on a $500,000 house and had $500,000 in the bank and I was upset that I didn't qualify for a welfare check?
What if I got mad that my unemployment checks end when I got a job?
What if I retired with  $2,000,000 in the bank and then complained loudly because the government wouldn't pay for my nursing home bills when I became ill?

I think usually most people would consider me unrealistic and simply confused if I thought I ought to qualify for government handouts in those situations.

Now lets look at similar situations where people complain about not qualifying for financial aid:

We can't get a Pell grant cause we make over $100,000.
The government won't give us any aid cause they say we have too much money.
My son worked last summer and now he's being punished because they reduced his aid.

People say stuff like this all the time with a straight face and honestly feel somehow as if they're being abused by the government cause they don't get a free check.

[edit : I should point out that I'm mostly directing this little rant of mine at the parents who whine about not qualifying for aid.   Financial aid is based on the parents assets and income level.  There are instances where the kids can get a raw deal if their parents don't qualify for aid due to income but refuse to pay or manage their money poorly.  Being the child of a financially irresponsible parent is another issue.]

Financial aid is need based.

That means that financial aid is for people who have financial need.   If you have a good paying job and money in the bank then you do not have financial need and you won't qualify for financial aid.  
Financial need does not mean that you need some money because you already spent all of your money.  Financial need does not mean financial want.   If you have a solid income and / or financial assets then you are able to contribute to your own college costs.  



Let me repeat this so it is emphasized.. ..   Financial aid is for people who have financial need.




Nobody is entitled to financial aid.

I find it quite surprising how many people really feel ENTITLED to financial aid.   Some people actually sound quite upset and complain loudly about how they couldn't get financial aid.   People talk about being 'punished'



Financial aid is a free handout from the government, its really no different than food stamps or welfare checks.   Its not an insurance system and you didn't pay into the financial aid program.   It doesn't operate like social security or unemployment benefits.   Nobody promised that everyone would get free government money to pay for college.


Institutional financial aid is different

Some financial aid comes straight from the university.   That financial aid is handled by the university based on whatever rules they feel like making.   If you have a beef or complaint about the financial aid system that the university imposes then that is really a complaint about the university in question.   This is particularly true about private universities.   Its up to them to dole out their free money however they see fit.   If you don't like it then go to another university. 


Public universities and private are already heavily subsidized

Most of the cost of public colleges are not paid for by your tuition bill.   Tuition usually only covers around 25% of the actual costs of a university.   The majority of the money comes from the government in the form of state and federal tax dollars.   No mater how rich you are a public education is significantly subsidized by tax dollars.    Private universities get much less money from governments but they too share in tax money.   If you go to a public school then its its typical for government tax dollars to fund 50-75% of the cost of your college education.   Private schools are more likely to get 10-25% of their money from tax funds.    [edit : note that state funding for public universities varies substantially from state to state and the numbers I cite here are rough representative figures, not exact averages or anything.]

You probably DO get free money

Most people DO qualify for tax credits or tax deductions.   This is another form of financial aid for college.   Whats the real difference between getting a $2000 Pell grant and getting a $2000 tax credit?   Not much actually.  Either way its $2000 free money from the government.  It seems most people don't even consider or realize there are significant tax cuts available for college, yet this is free money that the vast majority of families qualify for.

Between government subsidies and tax credit government pays the large majority of public college costs

If you go to a public college and qualify for tax benefits as most people can then the government is paying the majority of your college costs.


Lets look at an example...
Go to a state college with a reasonable $7,500 tuition rate.   You fill out the FAFSA and get a big fat 'denied' because you make a whopping $80,000 a year and you've got a few thousand in the bank.   The government says you don't qualify for any aid.   Oh no!!    Why won't the government help you?!?    Don't they know college is super expensive?    Well in fact they do know that.  The government pays 50% of the bills at that college via tax funds and grants.   Tuition only covers 25%.   The other 25% is generated by the college itself from misc. things and gifts.   If the tax dollars went away your tuition bill would have to triple to cover the difference.   Plus you qualify for a $2500 tax credit.   Altogether you'll end up paying $5000 of that $7500 tuition rate and the actual costs for that college are triple that.   You may not get financial aid but the government is paying 76% of the cost of your public college education.


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5 comments:

  1. While I do agree that the entitlement attitude can get a bit silly; The fact that the formulas provide a disincentive for work and saving is a real problem IMHO.

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  2. Best post in a long time my friend. I feel the same way about people's entitlements being misplaced in our society. Unfortunately there is a lot of disagreement on what the role of government today should be.

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  3. I e-mailed my thoughts on this post and he was very receptive to my comments and asked that it post it here for others to see. Here's the e-mail I sent:

    I read your postings every so often and I think you usually come at things from a fact based analytical perspective so I was surprised by your posting,
    "you are not entitled to financial aid". I have two main problems with the post. First, you setup a straw man argument by saying that someone with $2,000,000 crying about college costs is the same as a family making $80,000 as being the same thing. I feel that you may have a misunderstanding of how college aid works and why their calculation of family income ends up hurting college kids more than you might think. When a kid goes off to college the government decides need based on thier PARENTS income not the kid's income. This means that for many young adults who no longer depend on their parents that the government will treat them as though they earned $80,000 regardless of how much actual help their parents provide. Furthermore, there are many kids with parents who refuse to help for ideological reasons or have managed their money poorly and cannot help. Either way it is not the parents but the kids who are penalized. I should also add that 'financial aid' can and often does mean loans at 5-7% which isn't typically what one thinks of as 'free money'. Second, you state in your post that the government at the state and/or federal level subsidize 75% of college costs. This is both true and untrue because the amount the state government pays varies significantly. In my home state of Texas at my alma mater UT Dallas I payed 46% of the tuition costs before you account for books and additional fees associated with a particular major but apparently, I'm one of the lucky ones. I have heard that other states like Ohio have cut the subsidy to higher education so much that now they only contribute 6% of the overall cost. I would also say that tuition inclusive of books, fees and a room can easily cost 15-20k per year at a state school that is mostly likely financed with student loans that in some cases gathers interest on deferrment until graduation. Adding all these things up you can easily see a bill for 60-80k or more for 4 years at a state school that has a 7% interest rate on stafford loans.

    I am not saying that the government should pay for everything for everyone but I think the current price tag and a brutal labor market is creating the impression that education is no longer worth while and robbing America of great professionals. I think that grades not price should dictate attendance to heavily subsidized state schools. If we make education free or very cheap it allows universities to get the best students and those most likely to succeed.

    I hope I was constructive in refuting this post and I welcome any response you may have.

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  4. SteveD :
    "The fact that the formulas provide a disincentive for work and saving is a real problem IMHO."

    I think that does apply for the finances of the student more. As a student if you work all summer the government will just turn around and say 'oh great you saved a bunch of money, guess you don't need that Pell grant any more', but if you just sit on your butt all summer the government will recognize you're poor and not expect you to pay anything. I think students should have a minimum expected contribution level before they get any free grant money.

    For the finances of the parents I don't think there really is a disincentive. I don't think any parents are turning down higher paying jobs so they can cash in on the Pell grant gravy train to fund their kids college. There are of course some leeches on society but those folks won't work hard nor save money no matter what you do and college financial aid is nowhere near the top of the list of reasons for them.

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  5. Dustin made a lot of good points and I agree with much of it. I added a couple edits to the article to clarify that I'm more talking about the parents rather than the student and how public university funding varies widely from state to state.

    Also, Dustin made an important point about loans and financial aid. Loans are technically part of the financial aid, though most of us don't consider a loan to be 'aid' like we do the free grant money. I wasn't really considering loans to be aid in this respect myself either. Loans are subsidized and beneficial (you'd pay much higher interest without government support and backing and it would likely be hard for many students to get loans). But most people are not thrilled to be given the opportunity to borrow money nor think of that as much of a benefit.

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