Should You Trust Startups Receiving Financial Aid?
With over $ 1.5 trillion in student loan debt in the United States, it’s no surprise that many people are looking to make college fees easier – and maybe a little cheaper. But as several startups have emerged in the tech arena with big ambitions to revolutionize how college tuition is paid, the average borrower may wonder if they’re legal.
I spoke with Betsy Mayotte, founder of the nonprofit The Institute of Student Loan Advisors (TISLA) , to get the opinion of someone who has worked in the financial aid industry for over 20 years.
Here’s what these new startups are offering and what you should know before signing up.
What financial aid startups promise
Some websites claim to help you complete your financial aid application for free.
Frank has gained a lot of attention in the past few years, which allows you to apply for a free Federal Student Aid (FAFSA) application through a portal that promises instructions in “plain English” (or Spanish). Applicants submit photos of their tax returns and the system filters out questions that are not relevant to that applicant to speed up the process. The average time it takes for a student to complete the FAFSA is “just over four minutes,” and the error rate on the website is lower than on the official FAFSA website, spokesman Drew Kerr said.
The FAFSA filing service is completely free. So how does it make money? Currently, there are three ways, the first of which is that Frank can collect commissions from schools, which he recommends to students completing their FAFSA through the site.
Second, by offering membership. Frank members pay $ 19.90 a month to access some of their financial aid in advance to fill any gaps in the payout process.
Frank also offers a financial aid service for students who feel they should be offered more federal aid. It costs $ 144.95, and Kerr explained that these customers receive personalized service, including an appeal letter written for them.
Meanwhile, a service called Mos promises its platform: “Applies you to every public financial aid program for a college you are eligible for, using one form.” It is unclear how he makes money at the moment: the FAQ states that he does not sell customer data; There is a return policy listed for “service plans” not fully explained online. (We reached out to Mos for clarification and will update this post if they answer.)
How to apply without them
But there is another way to apply for financial aid for free: simply by completing the FAFSA yourself. Over the years, the app has become easier to navigate, and due dates have become better aligned with college admissions calendar and a nicer website. You can even apply for federal assistance through the app .
“You never have to pay for help,” Mayotte said. Most of the companies that say they can help you fill out the FAFSA for free are legal, she says, but she doesn’t think they are necessary. “Settlement [FAFSA] is settlement,” she said.
Mayotte said every state has some sort of college access office that will help you get through the FAFSA for free. You can even attend a so-called FAFSA Day in your state where free seminars are held in various locations, help fill out the FAFSA form, and help apply for a scholarship.
She said users of these services are likely to be promoted through a variety of loan programs beyond the federal student aid they apply to. Frank has explained in his privacy policy how he uses your personal information and allows you to opt out of sharing information .
You do not have to pay for the letter of appeal.
“I feel like it’s a little predatory,” Mayotte said when I asked her about the programs that will write your letter of appeal for financial aid for a fee. “They prey on student panic.” She has worked with many borrowers who have filed letters of appeal and reassure them that you are not judged by how well you write. “They are looking for what makes you fight, what you do to improve it, whether you meet with academic leaders,” she said.
Mayotte explained that many of the students who need to appeal a decision to grant aid are graduates who need more than four years to graduate – hence the academic advisor’s consent. But other students may be dealing with changes in family income, medical debts, or simply a better deal from another school.
If you choose to use a third-party company to file your FAFSA application or choose college payment options, “Make sure you understand the terms and conditions,” Mayotte warned. Also, read the many reviews and use your common sense. “Every time you look at a financial product, be it a financial aid app or a credit card, you have to do your homework,” she said.