In our last post we discussed emergency aid and how it differs from other forms of financial aid. Here, we’ll take a close look at the different types of emergency aid postsecondary institutions are offering students to help them deal with unexpected financial emergencies. We’ll cover the advantages and challenges associated with each form of emergency aid as well as what types of emergency aid must be considered Estimated Financial Aid (EFA) and factored into the student’s other financial aid eligibility.
Grants
Emergency Grants
Many institutions have established emergency grant funds to address students’ emergency financial needs. These funds are generally separate from institutional grants and scholarships awarded through the regular financial aid process and may not even be administered by the financial aid office. Grants are beneficial for students because they do not have to be repaid. A major advantage of grants for staff is that grants are generally easier to administer than both loans (which require follow-up for future repayment) and non-cash aid like food pantries (which involve purchasing items for distribution and require space for storing inventory). Institutions set their own terms for the application process, who qualifies for emergency grants, and maximum award amounts. Emergency grants must be reported to the financial aid office and be factored into the student’s financial aid package as EFA.
Completion Grants
Like other emergency grants, these funds do not need to be repaid. Completion grants are sometimes categorized as separate from other emergency grants because their intended purpose is more specific in nature. Instead of being used to address unexpected financial crises as they arise, institutions award completion grants to students who are close to graduation and owe a past-due balance to the institution that may impede their progress toward degree completion. Like other types of emergency grants, institutions set their own terms for the application process, who qualifies for completion grants, and how much students can receive. Like other emergency grants, completion grants must be reported to the financial aid office and be factored into the student’s financial aid package as EFA.
Short-Term Loans
Short-Term Advances on Future Financial Aid Funds
Sometimes a student’s emergency is simply one of timing. They might have the resources to cover an expense, but not at the exact time it needs to be paid, such as when rent is due on January 1, but their expected student loan disbursement is scheduled for January 5. Some institutions use their emergency aid funds to make a short-term loan to the student until their financial aid disbursement is issued to the school, using the financial aid proceeds to pay off the short-term loan. Each institution establishes its own process for deciding who can receive advances on pending financial aid, the application process, the loan amount, whether interest will be charged, and how they will handle loans that are not repaid according to the terms of the loan. One advantage of short-term loans (which NASFAA understands to be loans that require repayment before the end of the student’s current enrollment period) is that they do not need to be considered part of the student’s financial aid package like grants and long-term loans do. Another advantage is that the quick repayment of these funds allows for a sustainable stream of funding to help other students. Finally, repayment of advances of future financial aid funds is virtually guaranteed since the institution has already confirmed the student’s eligibility, and because the funds will be disbursed directly to the institution.
Other Short-Term Loans
Short-term emergency loans can be made even if the student is not expecting a pending financial aid disbursement. However, short-term loans might still take into account some non-financial aid source of anticipated income, like a future paycheck, as the source for repayment of a short-term loan. The same advantages that apply to advances on future financial aid disbursements exist with other types of short-term loans, except that there is not as much certainty of repayment as there is with an advance, since in these instances the student would be responsible for repaying the loan to the institution themselves instead of the funds being automatically disbursed to the institution, as is the case with financial aid.
The major disadvantage of short-term loans is that they are not the best fit for all types of emergencies. A short-term loan nicely solves problems of timing. However, short-term loans run the risk of only postponing the emergency for students without a viable financing plan for the rest of the semester. If the student simply hasn’t budgeted properly and their expenses exceed their resources, students will find themselves facing another emergency later in the semester or year. Institutions should take care to work with students to determine the true root cause of the emergency before relying on short-term loans.
Long-Term Loans
Long-term loans, as NASFAA understands them, have repayment terms that extend beyond the student’s current enrollment period. Institutions may choose to award loans as emergency aid for many reasons, including funding constraints. Unlike short-term loans, long-term loans must be counted as EFA for federal student aid purposes. This means that students must have unmet financial need in order to receive this type of emergency assistance. Still, loans can prove a valuable tool in plugging unanticipated funding gaps.
A serious consideration for using loans to address emergency situations is whether the student is already borrowing student loans, the amount they have borrowed to date, and their anticipated aggregate borrowing upon completion. Students with financial emergencies are likely to be students in precarious financial circumstances overall. The fact that they are requesting emergency aid means they don’t have other resources, like savings or family, to rely upon. Burdening them with even more debt could be setting them up for future, post-graduation, financial emergencies if their earnings are insufficient to service that debt.
Also, aside from affordability, adding yet another loan type with different terms and conditions adds complexity that students may not be prepared to manage post-graduation. Students have loan options from federal, state, institutional, and private sources, all with different names, interest rates, repayment schedules, and addresses to send payment. Students with multiple types of student loans may struggle to keep track of each and every loan during repayment, not only decreasing likelihood of repayment but putting their credit and overall financial health at risk. It is important to ensure that an attempt to help doesn’t inadvertently cause harm to students in the long run.
Non-Cash Emergency Aid
Some institutions supplement other emergency aid efforts or rely exclusively on non-cash sources of emergency aid, like food pantries, gift cards, and transit passes. One of the major advantages to these types of emergency aid is that it can get assistance into the student’s hands in a relatively short amount of time, without an application process or other barriers. With gift cards or transit passes, institutions can also spread out the method of distribution to different offices on campus, instead of establishing a single source for applying and approving emergency aid requests, saving students the time and effort of finding the office that administers emergency aid. And, unlike cash emergency aid, non-cash supports are limited in how they can be used, so institutions can be assured to a greater degree that the funds are being used for their intended purposes.
One of the trickiest issues institutions must reconcile when offering non-cash emergency assistance is whether it needs to be factored into the student’s financial aid eligibility. Non-cash aid is not addressed directly in federal financial aid regulations, so institutions must often infer themselves, from multiple areas of rules governing financial aid eligibility, whether non-cash assistance must be considered EFA.
For instance, federal regulations require that any educational benefits paid because of enrollment in a postsecondary education institution, or to cover postsecondary education expenses, are considered Estimated Financial Aid and, as a result, must be considered in the student’s total financial aid eligibility. However, if an institution operates a food pantry that is open to the community and not restricted only to enrolled students, the assistance received there does not need to be considered Estimated Financial Aid.
In addition to compliance considerations, there are other unique challenges to administering non-cash emergency aid. Some types of non-cash aid are difficult to track, like gift cards distributed across campus for faculty and staff to hand out to students as they identify need. Non-cash aid is also often difficult to quantify in terms of the value of the items received.
With the lack of clear guidance on how to treat specific types of emergency aid in the overall financial aid package, the responsibility for determining whether a type of emergency aid should be considered part of the student’s financial aid package often falls on institutions. Therefore, it is essential that institutions bring together all relevant campus stakeholders in determining a clear and defensible policy for how they will treat non-cash emergency aid with respect to other types of financial aid.
Referrals to Non-Emergency Aid Resources
At some point in the emergency aid process it may become apparent that emergency aid is not the best vehicle to serve a particular student’s needs. This may involve connecting students to other resources that are better suited to their unique circumstances.
Means-tested benefits
In the course of reviewing a student’s emergency aid request, institutional staff may realize that the student is chronically under-resourced versus experiencing an acute financial emergency, and that a small amount of emergency aid might help them in the short term but won’t likely get them to graduation because of the other deficits they face. Helping them to apply for means-tested benefits may provide them with the stability they need to get through their program of study, instead of navigating from one crisis to the next.
Financial aid office
While situations like a family member losing a job or other source of income certainly presents as an emergency, it may also impact the student’s long-term ability to persist to graduation. The financial aid office has the authority to adjust a student’s eligibility for financial aid to account for changes to a student’s ability to pay for school. You might still decide to help the student for the short term with emergency aid, but the financial aid office might be able to offer a new financial aid package that makes college more affordable for the rest of their program of study based on the student’s changed circumstances.
Thanks to NASFAA for providing this blog post.