HORROR STORIES TO AVOID

How Do You Avoid Your Own Horror Story?

“You can conquer almost any fear if you will only make up your mind to do so. For remember, fear doesn’t exist anywhere except in the mind.”

— Dale Carnegie

No one is immune to simple errors. Innocent mis­takes based on incorrect assumptions and haste happen every day. The following case studies illus­trate what went wrong and what should have been done about them.

Missing the points

While completing the FAFSA form of a student I volunteered to help, I hit a roadblock because her mother resisted providing financial information from her tax return. I respected her wish for privacy but was not entirely comfortable with her skepticism. After several months, the student was happy to share that she had been accepted to her college of choice. The bad news was that she was disappointed that she did not receive sufficient financial aid to attend it.

Although I knew how guarded the mother was, I of­fered to review her daughter’s FAFSA to identify any potential errors that may have impacted her award. I discovered that instead of rounding the amounts to the nearest dollar, she reported the cents after the decimal point. As a result, the $3,570.25 that should have been rounded to $3,570 was reported as $357,025, while $500.00 was similarly reported as $50,000, and so on. The FAFSA now offers the IRS Data Retrieval system to eliminate the decimal point problem for the information you can download. However, a fair amount of other data is still entered manually and subject to the same transposition errors.

After notifying the college about what had happened and correcting the errors, the student was grateful to receive a revised and much more generous financial aid package that helped pave the way to a more af­fordable college education.

Lesson learned: Be accurate, but don’t be afraid to question anything that looks wrong.

Same time next year

I was working with a client who was nervous about her daughter’s CSS Profile™. She sought my advice to review the form she completed independently. Her daughter was applying for Early Decision for the 2018–2019 academic year, which required a CSS Profile™ that would be available each October for the next academic year. For example, the CSS Profile™ for the 2018–2019 academic year will be available on October 1, 2017. Because she wanted to get a jump-start on the finan­cial aid process, she completed the CSS Profile™ that was available starting on October 1, 2016, for the incor­rect academic year (2017–2018), rather than October 1, 2017, for the correct 2018–2019 academic year.

After auditing her form, I recognized what she had done. She should have been more mindful of the dates and deadlines to prepare an accurate and timely form.

Lesson learned: Despite the good intent, this problem could have been avoided if she had created a calendar of critical dates and had gotten professional support to complete the correct form at the right time.

College hits a sour note.

Another family had a student whose heart was set on attending an expensive private college to obtain a de­gree in entertainment management. His dad had little savings and decided to liquidate his retirement nest egg to enable his son to attend the school of his dreams. The dad had also taken a parent PLUS loan to cover the unmet financial need, knowing that it did not have to be repaid for several years.

While the dad kept open lines of communication with his son, he never saw his grades nor maintained regular correspondence since most of the college documentation was sent directly to the son online. After the second semester, the dad re­ceived disturbing news from the college that his son had flunked out. The dad was devastated by putting all his eggs in one bas­ket and assuming complete financial responsibility. He had no retirement savings, had taken more debt, and could no longer financially support himself.

Lesson learned: Despite the dad’s good intentions, his son was not accountable to him and not financially responsible if he should fail. Paying for college is a partnership for which responsibility and accountabil­ity between parent and student is assumed. Although the dad did all he could to make the right deci­sions, he should have been more prudent, knowing the financial risk of his kindness. Each parent should be aware of the student’s progress and assume nothing. This is when ongoing communication is so important.

The scholarship was no bargain.

I helped a student who was being raised by his grandparents. Both had low incomes and poor credit. The student wanted to pursue a career in creat­ing video games and was advised to apply to several for-profit colleges that offered that major.

When I reached out to help him, he had no idea what programs were available, the salaries and job prospects for his prospective major beyond graduation, or how much his grandparents could af­ford.

Several weeks later, he informed me that he was ac­cepted into a for-profit school and would receive a $5,000 scholarship if he enrolled within the next week. I did not want to disappoint him, but I knew that the $5,000 was a marketing tool used to entice students, while the balance due would be much higher than his family could afford.

His grandparents wanted what was best for their grandson, but their only option was to send him to a two-year program at a community college. After that, he could transfer to a less expensive college.

Lesson learned: Scholarships are not just awarded but earned. Students need to know how for-profit colleges operate and the costs and benefits associated with their educational choices. Some offers, like discounts on in­flated prices, free perks, or reduced prices, are market­ing tools all consumers should know.

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Double trouble

Todd planned to attend a private university requiring a FAFSA and CSS Profile™. His dad was an only child and did whatever he could to help his elderly mother, who was ready to move into an assisted living complex. Although the complex would assume full responsibility for her care, meals, medical help, and other amenities, it also required that she sign her assets over to them for lifetime care. She decided the best way to shield her assets was to be dishon­est and transfer only $100,000 to the complex. She kept her remaining $350,000 in assets “hidden” by having her son manage them under his name and social se­curity number. He would then withdraw from these funds when she needed them, and she would leave the remainder to her son who controlled the account.

Todd’s dad invested wisely and earned substantial interest on the $350,000 he was safe­keeping. At year-end, he received an IRS form 1099-INT with reportable interest income now in his name and to be reported on his tax return.

While completing Todd’s financial aid forms, his pa­rental income was low, allowing him to qualify for need-based aid. That was when I came to the asset section, which included his grandmother’s assets that were now owned, managed, and reported under his dad’s social security number. Todd’s parents argued that the $350,000 were his grandmother’s assets that they were holding for her use until her death. Even so, the assets and income were in Todd’s dad’s name and social security number. They were thus includable as his assets in the financial aid cal­culations, regardless of their intended use. The result was a significant increase in the family’s EFC and a reduction in financial aid.

Lesson learned: It is not advisable to hide someone else’s assets that must be reported and will thus re­duce financial need. Financial planning would have provided better options for managing these funds.