Mike Kueber's Blog

October 25, 2013

Pell grants and means testing revisited

Filed under: Education,Issues,Politics — Mike Kueber @ 6:49 pm
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I have previously written about government means testing in general and Pell grants in specific.

The essence of my post on college-related Pell grants was as follows:

  • According to an article provided by U.S. News – “Those with EFCs (expected family contributions) above $4,041 will be disqualified for Pell grants. Almost all Pell grants go to students whose families have incomes of less than $50,000 a year.”
  • Presumptive GOP presidential nominee Mitt Romney has suggested that the federal government seems to be concerned only about the rich (cared for by the GOP) and the poor (cared for by the Dems), whereas the middle class is neglected.
  • Although I think Romney is right, I am also willing to make an exception in this case because there are few things as important in this country as encouraging motivated poor kids to go to college.  And because the federal government doesn’t have unlimited amounts of money (in fact, it has no money), a cut-off for Pell Grants has to be somewhere, and perhaps $50k is the appropriate cut-off.  Personally, I think the cut-off is a bit low, and if I were in Congress, I would push for Pell Grants to kids with parents making up to $100k a year.

The essence of my post on means testing was as follows:

  • When digging deeper into the federal government’s calculation of expected family contribution (EFC), I learned that (1) the government considers “resources” to be not just income, but also assets; and (2) assets do not include home equity or retirement accounts.
  • Calculations that consider assets in addition to income unfairly penalize someone (like me) for being thrifty.
  • Calculations that exclude home equity from assets unfairly penalize someone (like me) who chooses to live in a rental.

Obtaining access to the precise formula used by the federal government in calculating financial aid is extremely difficult.  In fact, for several months the government website has been saying that the 2013-14 formula is “coming soon.  Based on the ObamaCare roll-out, I am not holding my breath.  But I have been able to find the formula that was used last year, and although it is extremely difficult to understand, I believe it provides the following:

  • Each year, parents are expected to contribute a percentage of their income over $17k.  The sliding-scale contribution amounts to an $8k contribution on the next $30k of income, and 47% of any income over that.  It’s easy to see why this government formula results in people with incomes over $50k “being on your own.”
  • Each year, parents are expected to contribute 12% of their non-home assets toward their child’s college education.  That means that almost half of your lifetime savings will be depleted even if your kid is able to graduate in four years.  The government allows you to not count your first $20k of assets.

Looks like I’m on my own unless I park my savings into some sort of home equity or retirement account.

April 24, 2012

Pell Grants

Filed under: Education,Issues,Politics — Mike Kueber @ 7:31 pm
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Have you ever wondered what Pell Grants are?  Me, too.  Until today, all I knew was that they were the most prominent form of federal assistance to kids wanting to go to college.  Then today, after returning from the gym, I noticed my youngest son had received a response to his 2012-2013 financial-aid application – the so-called FAFSA or Free Application for Federal Student Aid.  According to the federal response, my son was not eligible for a Pell Grant.  Although the result did not surprise me (during my later USAA years, my level of compensation seemed to keep me from participating in any federal program worth participating in, especially the Roth IRA and personal tax exemptions), I decided to learn who was benefitting from the federal largesse of the Pell Grants.   

Not surprisingly, the information that I was looking for was not easily accessible.  Most sites, instead of providing understandable information, provided only general guidance, such as eligibility depends on financial need, which is calculated by comparing the cost of attendance at a specific college (CoA) vs. the expected family contribution (EFC).  Depending on the results of that comparison, a qualified student could receive between as much as $5,000 a year to as little as $500 a year.  An unqualified student (my son) would receive $0.       

Some sites actually provided an extremely complicated calculator to determine the most critical factor – the EFC.  Way too complicated for me.  But eventually I found an article that gave me exactly what I was looking for.  According to this article provided by U.S. News:

  • Those with EFCs above $4,041 will be disqualified for Pell grants. Almost all Pell grants go to students whose families have incomes of less than $50,000 a year.

Because I am not interested enough to analyze the inner workings of EFC calculation, I have no opinion on its merits.  But Republicans might argue, as its presumptive nominee Mitt Romney has already suggested, that the federal government seems to be concerned only about the rich and the poor, whereas the middle class is neglected.  Kids of the poor have the government stand in for their parents to provide just as much financial support as the government has calculated a middle-class family should be providing to their kids, and kids of the rich don’t have any money issues because of the generous tax loopholes granted by government.  As Mitt Romney says, no one cares about the middle class. 

Although we live in a democracy, I think Romney is right.  But I am also willing to make an exception in this case because there are few things as important in this country as encouraging motivated poor kids to go to college.  And because the federal government doesn’t have unlimited amounts of money (in fact, it has no money), a cut-off for Pell Grants has to be somewhere, and perhaps $50k is the appropriate cut-off.  Personally, I think the cut-off is a bit low, and if I were in Congress, I would push for Pell Grants to kids with parents making up to $100k a year. 

Assisting kids to go to college is one of the most important things the federal government should be doing.