For prospective students, the COA is the number used to compare the prices of different schools. The COA includes the cost of tuition, housing, fees, books, and miscellaneous living expenses.

For current students, the COA functions as a cap on financial aid. A student’s grants, scholarships, and student loans cannot exceed the COA.

Despite the significance of the COA, it is a number generated by a school’s financial aid office with relatively little oversight or guidance.

Does the Estimated Cost of Attendance overestimate or underestimate the actual cost of college?

In my personal experience, the actual cost to attend school was far less than the listed COA. I attended a midwestern public school as an in-state student, and I attended an expensive east coast private law school. In both cases, the COA exceeded my actual expenses each semester. Based upon this experience, I concluded — perhaps unfairly — that the COA was a conservative estimate.

When I received an email from a student who needed student loans beyond the COA, I warned that needing more money was a red flag and something was wrong.

I’ve now heard from several students who argued the opposite: the COA at their school was unreasonably low. They claimed the low COA made getting student loans and paying for college especially difficult.

Rules for Colleges Calculating Cost of Attendance

The items included in the Cost of Attendance are set by federal law.

For full-time students, the cost of attendance includes:

• tuition and fees,
• books,
• supplies (including a personal computer),
• transportation, and
• room and board.

The COA also includes special allowances for childcare and expenses for students with disabilities.

Unfortunately, Department of Education oversight into the Cost of Attendance is lacking. Schools have broad discretion in the COA calculations.

The Federal Student Aid Manual offered the following guidance to schools (emphasis added):

There are a variety of methods to arrive at average costs for your students: periodic surveys of your student population, assessing local housing costs or other pertinent data, or otherwise use reasonable methods you may devise which generate accurate average costs for various student cohorts.

Federal Student Aid Handbook (2017 Edition)

Given the broad discretion that schools have, it shouldn’t come as a surprise that there are concerns about the accuracy of the Cost of Attendance.

Research into Cost of Attendance Accuracy

One academic study found that nearly half of all colleges provide living-cost allowances at least 20% above or below estimated county-level living expenses.

For those who don’t want to read the complete study, this article has an excellent summary of the results, including some helpful visuals.

When the Chronicle of Higher Education reached out to the Department of Education about the accuracy of COA estimates, a spokesperson said: “We would suggest that a prospective student ask the institutions how the allowances were derived and updated.”

The Student Perspective

If you are a student, the rules regarding estimating the cost of attendance don’t really matter. Changes to improve the calculation may help future students, but a student trying to get a loan has to live with the current system.

There is one crucial takeaway for students and their families: the estimated cost of attendance might not be accurate. It could overestimate the cost of college, or it could underestimate the costs.

Both estimation errors present unique challenges to students.

Dealing with an Underestimated Cost of Attendance

The big problem with an underestimated cost of attendance is that it limits all forms of financial aid.

Students who have costs that exceed their financial aid have four options to fix the problem:

(1) Ask for an Adjustment – Your school’s financial aid office should have a procedure for COA adjustments. Schools are permitted “to adjust the COA on a case-by-case basis to allow for special circumstances.” Requesting an adjustment to the COA opens the door for additional financial aid, including more student loans.

(2) Personal Loan – Personal loans exist outside the scope of student aid. Unfortunately, they also have significantly higher interest rates, less forgiving terms, and repayment usually begins immediately. A personal loan may make a bad situation worse.

(3) Earn Extra Income – Money earned during the summer or from a part-time job doesn’t impact the Cost of Attendance. Thus, students who need a bit of extra cash can supplement their financial aid with outside employment.

(4) Spend Less – Even if your school has an unreasonably low Estimated Cost of Attendance, it is still possible to live on this budget. Options like having roommates or buying used books could be sufficient to make the numbers work. If a tight budget still doesn’t work, revisit option one and talk to the office of financial aid.

[Further Reading: Breaking Down the Options when you need student loans beyond the Estimated Cost of Attendance]

When the Cost of Attendance is too high

Most students would prefer that their colleges overestimate the cost of attendance.

The primary danger to the student in this situation is borrowing too much.

While excessive student loan borrowing is a mistake, it also provides some opportunities.

Suppose you earn more than expected at your part-time job and have an extra $2,000 at the end of the semester. Traditionally, students use this money to pay down their most recent student loans. However, students could use this money to attack high-interest debt or private student loans. This strategy may help students convert private debt into federal debt.

The important thing for students with a COA on the high side is to avoid lifestyle inflation. Living in a fancy apartment is nice, but choosing affordable housing is usually the best choice in the long run.

Living with the Estimated Cost of Attendance

There is plenty of reason for concern about the accuracy of the Estimated Cost of Attendance.

However, it is worth keeping in mind that schools have a pretty big incentive to be accurate. If their estimates are too low, students won’t be able to afford school. If the estimates are too high, the hefty price tag will scare away potential students.

For students, this means the estimated cost of attendance is likely a decent starting point for your budget. Even if it is a little tight for the average student, there is nothing wrong with keeping your expenses below average to minimize student loan borrowing.

The post Is the Estimated Cost of Attendance an Accurate Number? appeared first on The Student Loan Sherpa.

For this reason, it is a big mistake to judge schools by the sticker price. Many high-priced schools have excellent financial aid programs. These schools provide aid that may cover the entire cost of tuition and potentially more.

The schools that provide large scale financial aid normally have two resources in their favor: a massive endowment fund and students from wealthy families who can afford the large bills. Getting admitted to a top college may be a significant challenge, but paying for a quality education has arguably never been more affordable.

“No-loan” Colleges 101

The idea behind a “no-loan” college is pretty simple: students will not need student loans to attend.

Many families mistakenly assume that only the very poor can qualify for “need-based” financial aid. In reality, many solidly middle-class families can get most or all of the tuition paid for by the school.

Some schools have their own financial aid application, while others rely mainly on the FAFSA for determining a family’s ability to assist with their child’s education. These financial aid applications are used to determine a family’s EFC (Expected Family Contribution).

Schools may also expect that students earn some money via work-study programs.

Once these two funding sources are added up, the school will cover the remaining cost of attendance via scholarships and grants.

Finding a No-Loan College

There isn’t a definitive list of the no-loan schools, and with each passing year, more schools claim to be no-loan schools. Lists of schools that claim students can graduate without student debt can be found here, here, and here.

Many other schools may not fall into the “no-loan” category, but they still might have excellent scholarship and grant opportunities. These schools may not be no-loan for all students, but they might be no-loan for many families.

If there is one theme among the many no-loan schools, it is that the elite institutions often have the best financial aid programs. Students considering these schools should not be intimidated by the high prices of education. Instead, they should focus on overcoming the challenging rejection rates.

Is it Possible to Get Student Loans if you Attend a No-Loan School?

Yes. The No-Loan designation means that the financial aid at the school is designed so that students will not have to borrow any money. The schools do not ban students from borrowing student loans.

For example, circumstances may exist where a student is unable to work during the school year, or the family is not able to meet the Expected Family Contribution. Working with the school’s financial aid office may yield additional grants or scholarships. Still, even if no other funds are available, students can get loans to cover the funding gap.

How can Schools Afford No-Loan Policies?

Many of the schools that have generous financial aid programs also have very large endowments. Universities use endowment investment returns to provide financial aid for students in need.

Unfortunately, the no-loan policies are often limited to the elite or more selective schools. Even though most schools employ a “need-blind” admissions policy, students from wealthy families tend to get admitted at much higher rates than poor and middle-class students. Students from wealthy families often have access to better high schools, tutors, and college-application coaches.

One recent study found that 43% of white Harvard students were not admitted on merit. Rather than gaining admission based upon merit, these students fell into the following four groups: children of faculty and staff, athletes, legacies, and applicants with ties to wealthy donors.

In short, no-loan policies don’t mean that anyone can afford to go to college. Instead, it means the top students who get admitted into elite schools don’t have to worry about affording the hefty bill.

One Tip When Applying to College

Affording school should be a significant concern for any potential student.

However, comparing schools based upon the listed price of tuition can be very misleading. Some schools are set up so that any student who gets admitted can afford to attend. Others may not be as good, but they still might have excellent financial aid and scholarship programs.

Schools that appear more affordable based upon tuition prices could cost more because they provide no financial assistance.

Unfortunately, it can be challenging to tell which school is the most affordable. Sometimes it requires an acceptance letter and results from the Office of Financial Aid.

Finding actual costs might be confusing, but don’t make the mistake of assuming a school is too expensive without first doing a little bit of research.

The post Tuition is Nearly Free for Most Families at These No-Loan Colleges appeared first on The Student Loan Sherpa.

To a borrower trying to repay their student loans, the differences between federal and private loans are critical.

Borrowers who take a few minutes to compare these two loan types can potentially save thousands in repayment. They might also avoid regrettable mistakes that could haunt them for decades.

Federal Repayment Plans vs. Private Repayment Plans

The most important thing to know about federal repayment plans is that there are several income-driven repayment plans.

What makes these plans special is the fact that borrowers can make payments based upon what they can afford rather than what they owe.

This key difference means that federal borrowers can avoid delinquency and default on their student loans, even if they lose their job.

The availability of income-driven repayment plans is an excellent consumer protection that is especially valuable for borrowers who fail to finish school, struggle to find jobs in their field, or don’t earn enough money to pay off their debt.

[Further Reading: Strategy for Selecting the Best Federal Repayment Plan]

Private repayment plans are far more rigid and less forgiving of borrowers who find themselves struggling to meet their loan obligations.

Private repayment can begin as soon as the loan is issued or once the student finishes school. Some lenders will make special accommodations for borrowers who cannot afford their payments. However, these accommodations are generally on a case by case basis and far less flexible than the standard federal student loan options.

Student Loan Forgiveness

Perhaps the biggest perk with federal student loans is the availability of student loan forgiveness programs.

While student loan forgiveness on federal debt is still the exception rather than the rule, having this option helps borrowers avoid a situation where they have a mountain of student debt and no meaningful way of ever paying it back.

Two highlights of the federal student loan forgiveness options are the Public Service Loan Forgiveness program, which can lead to student loan forgiveness after ten years of work in public service, and the income-driven repayment plan forgiveness option, which can wipe away federal debt after 20 to 25 years.

Borrowers should expect and plan to pay off their debt in full. However, by seeking out loans with forgiveness options, borrowers are protected should they end up in lower-paying work or out of the workforce.

When it comes to private student loans, paths to student loan forgiveness are almost non-existent. Additionally, borrowers will have a hard time converting private loans into federal student loans.

Note on Student Loan Forgiveness: The most popular student loan forgiveness programs are Public Service Loan Forgiveness and Income-Driven Repayment Forgiveness. However, there are at least 12 different types of student loan forgiveness.

Federal vs. Private Student Loan Contracts

The government issues federal student loans according to terms set by Congress. The Master Promissory Note (MPN) is the contract signed by students that sets out the loan terms and requirements.

Signing a Master Promissory Note is required to get any federal student loan. Once signed, students usually will not be required to sign a second MPN. The MPN explains the different repayment options available on federal student loans and how students can earn loan forgiveness.

Private student loans are governed by the contract signed between the borrower and the lender, usually a bank. The terms of these agreements can vary greatly from one lender to the next. Some loan contracts have excellent terms favorable to the borrower. Others have terms that make borrowers cringe.

Generally speaking, students should select federal student loans if financial assistance is required. However, private loans can be a better option in limited circumstances.

Federal student loans are preferred mainly due to their favorable repayment plans and forgiveness options.

Qualifying for Federal Loans and Private Loans

Getting federal student loans is fairly simple.

Borrowers must complete the FAFSA. While there are some limited credit requirements to qualify for certain PLUS loans, gaining eligibility for these loans is far easier than private loans. Borrowers, rich and poor alike, will be able to get federal student loans.

Obtaining private student loans can be more difficult.

Borrowers fresh out of high school with a limited credit history and/or limited income will find qualifying for a private loan to be especially challenging. For this reason, many private loan borrowers need to find a cosigner for their loans.

Unfortunately, having a cosigner comes with additional challenges.

Private Student Loan Cosigner Issues

The most important thing that all borrowers and cosigners should understand is that the cosigner is legally responsible for paying off the student loan in full.

Even if the borrower promised the cosigner that they would make payments, if the cosigner is on the loan, the lender can require them to make payments if the cosigner misses payments.

Cosigners should also understand that the student loan will appear on their credit report. This can potentially impact a cosigner’s credit score and debt-to-income ratio.

Cosigner issues can also have more than just financial consequences. Ugly student loan situations can lead to serious disputes and hurt feelings between family members.

Lenders often advertise the existence of cosigner release programs. While these options sound nice in theory, they are hard to obtain and offer the cosigner no protection should the borrower struggle to meet their obligations.

Federal and Private Loan Borrowing Limits

The big limit that applies to all forms of student aid is the Estimated Cost of Attendance (COA). The COA is calculated each year by the school.

The total student loan borrowing plus any grants and scholarships cannot exceed the COA. However, most students will find that the COA is a far higher number than what it actually costs to go to school. Students who find that the COA is less than their actual expenses should view this issue as a major red flag and get into contact with their school’s financial aid office.

Federal student loans also have yearly borrowing limits. These limits can be quite low for undergraduate students. However, graduate students will usually find they can get ample amounts of federal student aid to pay for grad school.

The only other limit with private loans is imposed by lenders. Based upon a borrower and cosigner’s credit score and debt-to-income ratio, a lender may cap the yearly and total borrowing that they are willing to issue. Lenders make these determinations based upon the credit application rather than the actual cost of the school.

Federal Interest Rates vs. Private Loan Interest Rates

Congress sets federal student loan interest rates. These rates will vary depending upon the type of federal loan borrowed.

Generally speaking, federal student loan interest rates are good but not great.

Lenders set private student loan interest rates.

The borrower’s creditworthiness is a big factor in the interest rates offered. Some private student loans have excellent interest rates that are better than the federal rates. Other private loans have interest rates so high that they are closer to credit card interest rates.

Due to this wide range of possible private loan interest rates, borrowers should shop around with different lenders to find the best available interest rates.

Student Loan Fees

When selecting student loans, borrowers should pay special attention to the various fees charged.

Borrowers should avoid loans with prepayment penalties. No borrower should accept loan terms that charge a fee for paying off the loan before it is due. Fortunately, the federal government does not charge a prepayment penalty. Reputable private lenders won’t charge a prepayment penalty either.

The federal government charges loan origination fees. This is a fee added to the balance of the loan from day one. The origination fee should be accepted on federal loans because it is the only way to get federal loans.

Borrowers should avoid origination fees on private loans. Most private lenders do not charge origination fees. Even if the fee charged by the private lender is relatively small, it can be the sign of a lender that is imposing terms that are not very friendly to consumers. Smart borrowers should steer clear.

Bankruptcy

Bankruptcy is nearly impossible on all forms of student debt.

The lack of a meaningful bankruptcy option raises the stakes on student loan borrowing. Unlike credit card debt or mortgage debt, student loan debt can follow a borrower for life.

Because student loans lack this fairly standard consumer protection, it is critical that borrowers only borrow what is necessary. Borrowers should make sure they have a plan, and a backup plan, to pay back the debt in full.

The strict treatment of student debt in bankruptcy proceedings is yet another reason that borrowers should stick to federal student loans. The repayment plan and forgiveness options protect people who face financial hardships.

Other Student Loan Issues

Like bankruptcy, no college student expects to die at a young age or become disabled.

Unfortunately, these tragic events happen. As a result, it is vital to select lenders who have favorable terms for borrowers who pass or become disabled.

Federal student loans have relatively strong forgiveness provisions for borrowers who die young. They also offer protections for borrowers who become permanently disabled.

On the private loan side, lenders can be far less accommodating.

Some lenders have clauses in their contracts that require cosigners to immediately pay the loan off in full if the borrower dies. Borrowers should avoid dealing with lenders who impose such terms. Borrowers who are stuck with these terms on existing student loans should consider life insurance policies to protect the cosigners on the loans.

Why Choose A Private Loan Over a Federal Loan?

When comparing federal vs. private student loans, deciding on federal loans should be an easy choice.

The one exception would be for borrowers with considerable financial assets and full confidence in their ability to repay. These borrowers may seek out low-interest private student loans to save money on the cost of borrowing.

These borrowers would be giving up all of the federal student loan perks and protections solely for the slightly lower interest rates.

One example where this approach might make sense is for a borrower who only needs the student loan as a short-term loan. Some federal student loans can come with origination fees and higher interest rates, so opting for a no-fee low-interest private loan might make sense.

Ultimately, most borrowers will find that federal student loan interest rates are close to or better than the rates offered by private lenders.

The borrowers who find lower rates from private lenders should consider the extra cost of the federal loan to be an insurance policy. Only if the insurance policy is way too expensive or completely unnecessary should a borrower consider private student loans.

For most borrowers, federal student loans are the safe choice and smart choice.

Next Steps

• Borrowers in repayment are not able to convert private loans into federal loans. However, there are opportunities to get lower interest rates, which could make repayment easier.
• Students planning for school should review the federal student loan borrowing limits and complete the FAFSA.
• Families should also investigate ways to get a four-year degree without taking out any private loans.

The post Federal vs. Private Student Loans: What You Need to Know appeared first on The Student Loan Sherpa.

Sometimes, the Estimated Cost of Attendance is less than the actual cost to attend school.

This kind of situation can make financing your education far more difficult than it already is. Although alternative loans are available, the best approach is usually to request an adjustment to the Estimated Cost of Attendance.

Typical student concerns about the Estimated Cost of Attendance

Here is a reader email that is a fairly typical Estimated Cost of Attendance issue:

Sherpa,

Hello and thank you for offering this service. I’ve recently been accepted into a graduate program at Cal State Stanislaus. The only problem is that the program is in San Francisco, but they calculate the COA [Cost of Attendance] for Turlock, CA where the campus is located. As such, they estimate the COA at $42,392 per year. Tuition alone is $24,500, which would leave me with $17,892 for the entire year. Rent alone would gobble up AT LEAST about $12K, leaving me with $6,000 ($500 per month) towards expenses like food and gas. That’s obviously not going to be enough.

What loans can I apply for that aren’t tied to the COA? I’ve applied for a scholarship, but that would only reduce the COA, not add to the amount of money that I will live off of.

Loans not tied to Cost of Attendance

First, we will directly answer your question, but please be sure to read the entire response.

Student loans, by definition, are based upon the cost of attendance (COA). If you borrow beyond the COA the loan is technically not a student loan, which has major legal implications. If your loan exceeds the COA, you can’t claim the student loan interest deduction on your taxes during repayment. Also, the loan won’t have the same bankruptcy limitations as student loans. This means your interest rate would probably be much higher than it would be for a student loan.

As a college student with no income (we assume this because you are looking to borrow beyond the COA), securing a non-student loan (what’s known as a personal loan) will be highly unlikely. Many lenders provide personal loans, but beware because this is dangerous territory. Some lenders offer loans with interest rates as high (or higher) as those charged on credit cards.

Fortunately, it is possible to have the cost of attendance adjusted.

Borrowing above the Cost of Attendance

The COA is usually a fairly conservative estimate, giving most students a comfortable margin between the actual amount they need and the estimated cost of attendance. If you are concerned that you will need more than the COA, it should be a red flag. However, the cost of attendance estimation isn’t always accurate.

If you’re living in a city that’s more expensive than where the COA was estimated, that could partly explain why you’re facing this issue. But, if this is the case, it’s probably affecting other students in your program too. It’s worth asking around to see how others have dealt with this situation. This is also a good topic to bring up with your financial aid office. They might be able to provide insight or solutions based on what they’ve seen in the past.

Possible Solutions

Borrowing more money should always be a last resort.

San Francisco is a very expensive place to live. Is getting a roommate a possibility? What about living further away from campus and taking the BART (public transportation) to school?

Another option to consider is finding part-time work while you are in school. Obviously, it requires a significant time commitment, but the income from a job can help cover your living expenses and this it wouldn’t count against the Cost of Attendance.

Raising the Estimated Cost of Attendance

At many schools, the office of financial aid will consider adjusting the estimated cost of attendance. Here is an example of an estimated cost of attendance adjustment request page.

If the request is granted, students can typically borrow additional student aid to pay for school.

Even if the request is granted, students should use extreme caution with the additional borrowing. Before moving forward, take a moment to evaluate other options and determine whether or not the degree is worth the high price.

Sherpa Tip: Under federal law, the cost of attendance should be adjusted for students with costs related to a disability or dependent care costs.

The Bottom Line

$40,000 is a lot of money to borrow for one year of school. If your college is telling you that it should cost no more than $42,392, there is reason for concern if you’re struggling to stay within that budget. Either the school has made an error that should be fixed, or you have.

While personal loans do exist and would not count against the Cost of Attendance, this is an expensive solution to a problem that could possibly be resolved through other, more palatable strategies.

The post Help! I need more money than the Estimated Cost of Attendance appeared first on The Student Loan Sherpa.