Daily Aid 115: How much to borrow in student loans, selective service question

21 April 2009 3 views No Comment

Daily Aid 115: How much to borrow in student loans, selective service question

Student Financial Aid News

They bought into the notion that if they went to college — never mind the debt — their degree would lead to a lucrative job. And repaying their student loans would never be a problem. But the economic crisis has turned those assumptions on their ear as thousands of recent graduates have been unable to find jobs or are earning too little to cover the payments for loans that are sometimes as high as $50,000. The result has been rising default rates for student loans. And unlike other debts, student loans cannot easily be renegotiated.

Commentary

We’ve been talking about how much to borrow as far back as Episode 463, way back in February of 2007, and reran the numbers later on, and came up with this statement:

Never borrow in total more than your estimated first year’s after tax earnings.

Let’s walk through exactly how to compute this.

First, go to the Bureau of Labor Statistics. Go to the National Compensation Survey. Find your state where you expect to live after graduation.

Identify the metro area if applicable. Here, we’ll use Boston, headquarters of the Student Loan Network.

Find your presumed occupation after graduation. Let’s say for example Public Relations Specialist.

Choose All Years for the most comprehensive data.

You get a data point: 30.92. This is the average hourly wage of a PR specialist in the Boston area. Multiply this times 40 for earnings per week, and times 52 for weeks in a year, and you get $64,313.60.

Now, apply a tax calculator to this number to find out your after tax earnings. Here’s an example calculator. You’ll need to know your state and federal income tax rates – for federal, most students earn between $32,000 and $78,000, which is the 25% tax bracket. Add in any local taxes if you know them.

Surprise – at $40,493, your actual take home pay is 37% less than what your gross salary is, courtesy of the government.

This number – the net pay, take home pay number – is the amount of money you have to live on every year and pay all of your bills with. This is the number that should not be more than you borrow in total student loans for your entire education, because as this example shows, relying solely on gross salary to compute how much you borrow leaves out the sizeable chunk that Uncle Sam takes out of your pocket before you even see it.

This is the borrowing rule of thumb: do not borrow more than your first year’s estimated take home pay for all your student loans, and this tutorial guides you through exactly how to compute that.

Scholarship Update

The Tampa Bay Advertising Federation is offering a $1,000.00 scholarship to one high school or college student enrolled in an advertising, marketing, graphic design or mass communications curriculum at any accredited school in Hillsborough, Pasco or Pinellas Counties. Graduating college students and graduating high school students who plan to pursue a degree of higher education are also eligible to apply.

Details at our free college scholarship search site.

Mail Bag

Dragoneer and Matthew Ebel asked on Twitter:

I’m apparently being denied tuition loans because I never registered for Selective Service, aka “the Draft”. Dragoneer: Draft Dodger. It’s a law? I’m 29, and I never heard of the !@#$ing thing until 20 minutes ago. How the hell am I supposed to know?

I have very little familiarity with Selective Service beyond the registration requirements, so I asked the financial aid community. Here’s what they said, in aggregate. Full names have been withheld.

I have a disabled student in the same situation. He didn’t know he needed to register because he thought his disability made him exempt. I had him write a letter explaining the situation, and I override the selective service match every year. I think that a letter from the student explaining why he did not register is sufficient documentation. – S

Unless the student never visited a US Post Office and never watched TV (where PSAs used to appear occasionally), he will likely have a difficult time whenever he tries to say that his failure to register wasn’t ‘knowing’. We’ve only used that at schools where I’ve worked for students who became citizens or permanent residents. – M

This is an individual call by the school he is attending. So, it does not matter how many opinions you get, only one counts. The Selective service advisory letter will tell if they have record of sending him correspondence. That is often a major factor for me. – T

We require that they also explain where they were and what they were doing between the ages of 18-26. Did he get the letter from the Selective Service (that they send to all males when they are turning 18)? When did he get a driver’s license? When did he register to vote? Those are all times when you would be notified to register with selective service. Just because someone didn’t know at 18 doesn’t mean they couldn’t know later. Also, we would possibly ask them to get us a letter from the Selective Service. The Selective Service sends out confirmations of if THEY sent a letter to the student and it was not returned to them. So we would require a lot more documentation.

However, I know colleagues of mine at other schools simply have a student check a box on a letter that says “it was not knowing and willful” and leave it at that. – T

Our student’s father had a rare immune disorder, similar to the “boy in the bubble”, so our student was home schooled as to minimize his father’s exposure to germs. We had him get a letter from the Selective Service which quoted Section 12(g) of the Military Selective Service Act (40 App. U.S.C 462(g), which is the text you were referencing. In addition we asked him to sign an affidavit explaining why he didn’t register, thus supporting his claim that it was “not knowing and willful”. – C

He can contact Selective Service for an Advisory Opinion Letter. The form can be downloaded at www.sss.gov.

He explains on the form why he didn’t register, sends the completed form to Selective Service, and waits for the response (@ 4 weeks). Then he takes the response to the college he’s attending.

In general, such responses state that it’s up to the institution granting the benefit (in this case, the school, since he is applying for a loan); when it’s up to the school he must also provide the institution with an explanation as to why he didn’t register.

In 20 years, I’ve only seen one Selective Service response where the student was told he absolutely was not eligible for the benefit, but I also had one student who told me he didn’t want to get drafted so he deliberately didn’t register. Unfortunately, I could not in good conscience grant him federal aid, since it was “knowing and willful”. What is sadder is that the draft had been abolished, and he wouldn’t have been drafted anyway, absent an act of Congress.

When it’s up to the school to make a final determination, it really depends on the school. – P

He needs to get a letter from Selective Service regarding whether his failure to register was “knowing and willful.” Then he needs to present that letter to the school. The school’s decision regarding his eligibility is final and can’t be appealed to Selective Service, U.S. Department of Education, or anyone else. – D

I have come across this from time to time. I ask the student to request a Status Information Letter from the Selective Service (www.sss.gov) and when they receive it back from the Selective Service it typically will show they are not registered. The student must then submit a written statement explaining in detail why they failed to register to our office along with the Status Information Letter for review. It is really up to the discretion of the FAA to determine if the explanation was “not knowing and willful” or not… – Y

Ultimatly, it is the schools that make the final decision. Some will probably play it pretty close to the vest and require pretty definite proof that it was not willful nor knowing. Others may be somewhat more liberal and allow the student’s written letter and no obvious information from SSS to the contrary. – P

I always ask for the “Status Information” letter from Selective Service and use the code they list at the bottom of the letter as a determining factor in my final assessment. – A

It is difficult to believe that someone could have been in a bubble that long and not have registered for SS. Secondly, the potential student would have to provide some documentation that beyond 18 he never was in a post office, talked with someone that had registered, or was in a foreign country where the issue didn’t arise. He might have more luck if he were up front and stated that he saw no reason to register since it didn’t affect his daily living and only now has realized that he omitted a responsible action that is denying him a benefit. – R

I extend my thanks to the many financial aid professionals who responded to my query about Selective Service. If you’re male between the ages of 18 and 26, you MUST register for the Selective Service (even though we no longer operate a military draft at present) in order to qualify for financial aid.

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