30 Aug

College Loses Millions to Financial Aid Error

Alabama’s Birmingham-Southern College officials had a shock when they recently reviewed their financial aid spending: they discovered that they have been over-awarding financial aid to students for years, an error that will cost them millions of dollars.

Suffering the Consequences

While the college plans to honor the award letters given out to their students, the error will mean making a 20 percent budget cut in the school’s overall spending plan, reducing it from $49 million to $39 million. They have yet to solidify where the cuts will occur, or how it will affect the campus and what it can offer students.

So what exactly caused these problems in the first place?

According to the The Birmingham News, financial aid officials have been mistakenly awarding Pell Grants to students on top of their original award packages, instead of incorporating them into the total–and Birmingham-Southern has been making up the difference. So, for example, if a student was supposed to get a total of $15,000 in aid (including the Pell Grant), the school would award those funds out of their own pocket and then add the Pell Grant, meaning that the student ended up with a total of $20,000.

This costly mistake has been costing the college $5 million every year, and was only recently uncovered. Though the errors were completely legal (over-awarding out of school funds is not against the law) and unintentional, most of the higher ups in Birmingham-Southern’s financial aid office have chosen to resign.

What it Means for Students

A mistake like this might seem like a stroke of luck to students–an extra $5,000 of “free” money could really help with the college bills–but in the end it may turn out to be more bain than boon.

For one thing, a 20% cut in the college budget could seriously affect the overall college experience. In the past schools have cut courses, staff, sports, and other student activities and campus services to help tighten their proverbial belts.

Another problem could arise when award letters come home next year. Students used to getting that larger aid number will now have to scramble to come up with a substitute for erroneously awarded money. This could mean anything from more work hours to taking on higher loan amounts, and for the lower income families who qualify for Pell Grants, that could be a severe burden.

The Boy Scouts Were Right…

…it is crucially important to “be prepared” for as many possibilities as you can. Even without a costly and confusing mistake like the one at Birmingham-Southern, the world of higher education is constantly in flux. Tuition prices go up, loan rates change, job markets can get difficult, and financial aid fluctuates depending on the college and the economy.

While part of my focus with clients is to create a financial “road map” that will see them through the college years, an equally important part is keeping that map current as both personal and outside influences change the way families pay for college.

As you plan out your college funding strategy–either with a college planner or on your own–don’t expect the first solution to be perfect. As with any part of parenting, discovering how to meet your child’s college expenses and the needs of yourself and your family must to be a fluid, evolving process. Plan for the best, but prepare for the worst, and you will come out ahead.

All the best,
Deborah Fox

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