Maximize financial aid by filling out FAFSA

As of Jan. 1, the Free Application for Federal Student Aid, or FAFSA, became available for the 2012-13 school year. The FAFSA qualifies students for federal grants, loans and work-study jobs, and serves as the basis for determining aid eligibility for many private awards. In light of other 2012 financial aid changes that will make it tougher for some students to pay for college, maximizing your federal aid eligibility is more crucial than ever. Here’s how to get an A in FAFSA 101.

Understand the basics

The sole purpose of the FAFSA is to determine your expected family contribution, or EFC — the amount the government believes your family can chip in for college that year. Based primarily on your family’s income and assets, the EFC qualifies students for federal grants, loans and work-study programs. It’s also one of the main factors used by colleges to determine how much your family can pay relative to the cost of that school and how much the college will contribute to your total aid package.
“Everyone should fill out the FAFSA,” says Beth V. Walker, founder of College Funding Coaches, a college finance planning firm headquartered in Las Vegas. “There are a lot of parents who think they make too much money and that they’re not going to qualify for anything, but I think it’s a surprise to many people to know that the merit-based aid is handed out many times through the need-based door.”
All undergrads, regardless of their family’s income, can qualify for a total of $27,000 in unsubsidized Stafford loans over four years, reports the Department of Education, while families with adjusted gross incomes of $60,000 or less can also usually expect some federal grant aid, says Walker. Unlike student loans, grants need not be repaid, though certain conditions may apply. Before filing, families can get an estimate of their EFC by using the FAFSA4Caster tool at Fafsa.ed.gov.

The loopholes

Understanding the federal aid methodology is especially important in light of 2012 financial aid changes. This year, the interest rate on subsidized Stafford loans for undergrads will increase, subsidized Stafford loans for grad students will be eliminated and students will have fewer semesters to qualify for a Pell Grant. It will also become harder to qualify for the full Pell Grant award. As of last year, families with adjusted gross incomes of $30,000 or less automatically qualified for a full Pell. This year, that threshold will decrease to $23,000, reports the Department of Education.
“Generally, need-based financial aid is going to be harder to get next year than it was last year,” says Jay Murray, president of Solutions for Tuition, a college planning firm in Lone Tree, Colo.
Families can take action. While most families can’t change their income, they can maximize their federal aid eligibility by filing the FAFSA as close to Jan. 1 as possible and by shifting or spending assets held in the student’s name.
“Student assets are assessed at 20 percent,” says Murray, meaning for every dollar in an account in a student’s name, the government will subtract 20 cents from the student’s aid package. This starts with need-based grants. “Parental assets are assessed at (up to) 5.6 percent.” The exception, Murray says, is 529 plans. These are assessed at the parental rate regardless of whether they’re held in a parent’s or student’s name.
Gary Carpenter, executive director of the National College Advocacy Group, a nonprofit organization in Syracuse, N.Y., says families can also increase their aid eligibility by knowing which investment vehicles the government doesn’t take into consideration.
“The FAFSA form does not assess the family home. It does not assess retirement accounts. It does not assess life insurance policies or annuities,” says Carpenter. “Also, they do not assess personal assets like automobiles, clothing, furniture — none of that is assessed.”
Families looking to shift assets from assessable accounts to sheltered ones can do so by maxing out their retirement accounts, paying down the mortgage on their primary home and purchasing personal items the student will need before filing the FAFSA. These personal items can include a computer or dorm supplies. Families who need those assets to be available for college costs can simply move funds from an account in the student’s name to a 529 plan or one held in the parent’s name.
Sandy Baum, a senior fellow at the George Washington University Graduate School of Education, adds that students should also alert their school’s financial aid office about expenses that aren’t considered on the FAFSA.
“For example, if you fill out (the FAFSA) and your parents made a reasonable income last year and then they lose their jobs, you want to be sure you go to the financial aid office,” she says. “Tell them this because they can adjust your aid award to account for those unfortunate new circumstances. That’s terrifically important.”
By letting your aid office know about factors that aren’t included on the FAFSA, such as medical expenses, death in the family, divorce or parental job loss, and by providing documentation, families can keep aid officers abreast of their current financial situation and increase their chances of landing college aid.
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Back a Lawsuit, Get a Return

An investor-financed suit against Chevron won a judgment of $18.2 billion Lou DeMatteis/Redux

By Paul M. Barrett
The white-wigged sages of British jurisprudence outlawed investing in someone else’s lawsuit for fear that feudal lords would manipulate their subjects’ litigation for profit or mere sport. The 18th century British jurist William Blackstone condemned such investment, known as champerty, for “pervert[ing] the process of law into an engine of oppression.”
Restrictions on champerty faded as the law evolved. In the U.S., the Supreme Court held in the 1960s that civil rights organizations have a constitutional right to invest in other people’s lawsuits that further the advocacy groups’ aims. More recently, many states have loosened rules to allow consumer-finance firms to lend money for legal cases. The companies that have done litigation finance to date have mostly made loans to plaintiffs’ lawyers pursuing slip-and-fall and auto-accident suits, often charging interest rates of 20 percent or higher.
Now litigation finance is moving up the corporate food chain. Larger and more sophisticated investment outfits, such as Burford Group and Juridica Capital Management in the U.K. specialize in making bets on bigger-dollar cases. Parabellum Capital recently opened its doors in New York after being spun off from the legal finance group at investment bank Credit Suisse. “We’re looking at a company’s lawsuit against another company as an asset on the corporate balance sheet that can be monetized in the short run, while we take an interest in, and some of the risk in, the long-run outcome,” says Christopher Bogart, chief executive officer of Burford and a former executive vice-president and general counsel of Time Warner.
Working out of Manhattan offices so new the art is still indicated only by blue tape on bare walls, Bogart runs a $300 million fund that made new commitments to legal cases totaling $35 million in just the last three months of 2011. “Another way of understanding what we do is that we provide corporate finance for assets that traditionally weren’t subject to finance,” he says. “We’re making the litigation marketplace more efficient.” His investors include Invesco UK, Reservoir Capital Group, and Scottish Widows Investment Partnership.
No data exist on how much is invested in ligitation finance. Burford’s analysis of figures gathered by American Lawyer magazine shows that the 200 largest U.S. law firms bill about $33 billion annually related to litigation, Bogart says. That excludes the cost of verdicts and settlements as well as the billings of tens of thousands of smaller law firms.
Litigation finance, which fertilizes lawsuits that otherwise might settle quickly or die altogether, “is poised for growth worldwide,” Cassandra Burke Robertson, associate professor of law at Case Western Reserve, wrote in an article published in November 2011.
While Bogart doesn’t like discussing Burford’s investments for the record, he points to one widely publicized case that concluded in 2010. The firm invested $6 million in a breach-of-contract lawsuit between two Arizona real estate developers. The winner, Gray Development, paid more than $18 million to Burford—a 200 percent return. Gray would not have been able to afford its highly regarded New York law firm, Simpson Thacher & Bartlett, without an infusion of outside capital, Bogart says. A spokesman for Gray did not return a phone message seeking comment.
In another case, Burford provided $4 million in financing in November 2010 that helped keep alive a lawsuit filed against Chevron on behalf of residents of the rain forest in eastern Ecuador who allege large-scale contamination from a predecessor company’s oil drilling. The investment allowed the plaintiffs’ team to augment its legal firepower by hiring Washington-based law firm Patton Boggs, which normally represents large corporations. Burford quickly sold off its stake in the case, eliminating its downside risk while retaining an interest in any winnings. In February 2011, a provincial Ecuadorian court imposed an $18.2 billion judgment on Chevron; an appellate court has upheld that verdict. The oil company has said it will continue to contest the judgment.
The bottom line: Burford Group has raised $300 million to invest in litigation. It put $35 million to work in the last three months of 2011.
Barrett is an assistant managing editor and senior feature writer at Bloomberg Businessweek.
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