Discover Student Loans, a provider of tools and resources to help parents and students understand the college financing process, recently offered PLANADVISER a sneak peek at a forthcoming survey of U.S. parents and college students.
While there are some points for optimism in the data, the findings are sobering, for example showing nearly one-quarter (22%) of students currently in college or recently graduated could not explain what the Free Application for Federal Student Aid even is. At the same time, just 46% of parents with college-bound children report that they have completed the FAFSA.
This is despite the fact that the total amount of U.S. student loan debt has topped $1.4 trillion, including nearly $75 billion in “parent PLUS loans” taken out by individuals on behalf of their kids. In terms of workforce percentages, 72% of workers say they have outstanding student loans or had successfully finished repaying loans while working. Other stats show 10% of individuals have both their own student debt and that of a friend or family member that they are responsible for, while 21% plan to take out debt in the next five years to help finance somebody else’s education.
Why FAFSA matters for retirement savers and families across the income spectrum
Simply put, the FAFSA is the main form that the federal government, states, colleges and other organizations use to award financial aid—so not filling out the form is more or less to signal one is okay with potentially leaving free money on the table. Why don’t more parents fill out the form? According to the survey, the dual beliefs that they would not qualify or didn’t need federal aid were the primary reasons both parents and students chose not to complete the FAFSA.
The survey shows 50% of parents with students currently in school or recently graduated said they didn’t fill it out because they felt they wouldn’t qualify for federal aid. When this segment of students were asked, 35% reported not filling it out “because they felt they wouldn’t qualify.” On the other hand, 42% of students in college or recently graduated didn’t fill it out “because they felt they didn’t need federal aid.”
According to Discover Student Loans, views on the ability to qualify and whether or not survey respondents need financial aid varied geographically. In the Southern U.S., 62% of parents of current or recently graduated students did not apply for the FAFSA because they didn’t believe they would qualify versus 38% in the West.
Sixty-seven percent of current or recently graduated students from the Northeast said they didn’t fill out the FAFSA because they didn’t need to apply for federal aid versus 25% in the West.
Nicole Straub, vice president for Discover Student Loans, encourages pretty much all families or individual college students to fill out the FAFSA, noting the form becomes available October 1.
“Families should plan to fill it out every year a student is in school, even if they feel they won’t qualify or don’t need the aid, because most people will be eligible for some aid,” she explains. To underscore the point, the survey report points to another analysis, published by the National Center for Education Statistics, showing about 72% of undergraduate students received some form of financial aid, which includes grants, federal student loans, and work-study.
According to Discover Student Loans, the FAFSA presents an opportunity for improving the financial literacy of both parents and students. However, less than one-quarter of parents with college-bound kids say they filled out the FAFSA with their child.
“It’s important for parents and students to communicate early and often about paying for college, and the FAFSA should be a part of those conversations,” Straub suggests. “If families work together to fill out the FAFSA, review their award letters and create a plan to pay for college, it can minimize any surprises and help everyone understand their future financial responsibilities.”
First steps advisers can bring to clients
Stepping back from the survey results, Straub encourages retirement planning professionals to think in new and innovative ways about the role they can play in helping boost the holistic financial wellness of workers and their families. This will touch on things like college savings, planning for the cost of health care, and more.
“There are points all along the way where individuals are making important choices that are critical to the overall amount of student debt that they will end up with, which in turn will have a big impact on their ability to establish financial independence and security,” Straub says. “One big step is the choice to fill out FAFSA, but there are other considerations, such as the school you pick and the major you pursue.”
Apart from its proprietary products and solutions, Discover Student Loans offers free digital tools and guides to help advisers and plan sponsors—and participants—navigate this area. First is the FAFSA assistant, available on the firm’s educational website (www.collegecovered.com), which walks people through the major questions they will be asked in the FAFSA. It also helps individuals pull together all the necessary supporting documentation.
Another tool highlighted by Straub is the award letter comparison tool.
“It can actually get pretty complicated trying to understand and compare what is being offered, or not, in different award letters,” she explains. “The letters are not all structured the same way, so we feel this tool is very helpful as well.”