

What to do when the school you plan to attend practices financial aid gapping.

Mark Kantrowitz

July 03, 2011

How Can I Fill the Gap Between Financial Aid and My Ability to Pay? How Can I Fill the Gap Between Financial Aid and My Ability to Pay?







There aren’t any resources that could fill such a large gap, other than loans. The summer is a little late in the year to apply for scholarships for the fall. Most of the scholarships with upcoming deadlines are for the next year, not this year. Moreover, very few students win private scholarships that provide that much money, so you’d be facing a lot of competition. The education tax benefits, such as the Hope Scholarship tax credit, won’t make much of a dent in your college costs. For example, the Hope Scholarship tax credit is only $2,500 and at most $1,000 of the tax credit is refundable. You could try working a part-time job to earn additional money to pay for college and minimize the debt, but $20,000 is a very big gap to try to fill.

If your mother borrowed the money through the Federal Parent PLUS loan, she would end up with total debt that is more than four times her income. The monthly payments would be more than two-thirds of her take-home pay under a standard 10-year repayment term and more than a third of her take-home pay under a 30-year repayment term. (Income-based repayment is not available for Parent PLUS loan borrowers.) She can’t afford to repay this amount of debt. Even if she could somehow manage to repay the loans, she’d be stuck with the debt until well into retirement. It is highly likely that she will default on this debt. But even then there’s no getting away from the debt, since it is almost impossible to get federal education loans discharged in bankruptcy, there is no statute of limitations on federal education loans and the government can garnish up to 15% of the wages and Social Security benefits of a defaulted borrower.

If your mother is denied a Parent PLUS loan, you will be able to borrow under the same unsubsidized Stafford loan limits that are available to independent students. But this provides only an additional $4,000 a year during your freshman and sophomore years and an additional $5,000 a year during your junior and senior years. That would force you to borrow the remaining money through higher-cost private student loans.

Even if you could find a way to borrow the money to fill the $20,000 annual gap, you shouldn’t. If you were to borrow this money on top of the Stafford loans included in your financial aid package, you’d graduate with more than $100,000 in debt for your Bachelor’s degree. That’s more student loan debt than 99% of your peers.

A good rule of thumb is to borrow no more than your expected starting salary for your entire education and ideally a lot less. With a six figure debt for a Bachelor’s degree, you will struggle to repay the loans. Your annual loan payments on a standard 10-year repayment term might exceed the amount of money your mother earns in a year. You’d be forced to use a longer repayment term and even so will be at high risk of default.

You might try working full-time in a public service job for ten years after graduation to qualify for public service loan forgiveness, but the forgiveness would be limited to federal education loans. Private student loans are not eligible for public service loan forgiveness and you would struggle to repay the private student loans on top of your federal education loans.

Unless the college significantly improves your financial aid package, you cannot afford to enroll at this college. You should consider switching to a less expensive college, such as an in-state public college or a more generous non-profit college that doesn’t practice gapping.

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