1. “You waited until April? Sorry, we gave your money away.”
At first glance, the amount of financial aid available to students seems like a goldmine. According to the College Board, graduate and undergraduate students received more than $168 billion in aid during the 2008-09 academic year; more than $109 billion came from the federal government alone not including education tax benefits. But thanks to the down economy, competition for that money is expected to be tougher for the coming year. Don t miss out on aid because of confusing deadlines for the Free Application for Federal Student Aid (FAFSA). Available at fafsa.ed.gov, the form must be completed to be considered for government grants and loans and both the government and prospective schools will review it. The federal deadline on the form is June 30, 2011, but schools’ financial aid deadlines listed in the colleges’ materials are as early as this February.
“Families need to submit their financial aid info as soon as they can after Jan. 1, preceding the student’s freshman year,” says Barry Simmons, director of university scholarships and financial aid at Virginia Tech. While the FAFSA asks for the previous year’s tax information a common reason parents postpone applying until April parents can estimate tax figures based on last year’s return and update them later.
2. “Your error, your problem.”
If you submit your FAFSA with errors, the central processor will send it to the prospective schools, which could have repercussions. One common mistake: Parents put their income and tax information in the student section or vice versa, which can’t be fixed by the machine scanning the form. The error might disqualify a student for financial aid. A student’s income is assessed in the financial aid system much more heavily than parents income, says Tally Hart, senior advisor at Ohio State University s Economic Access Initiative, which focuses on college students from low-income families.
Although new labels beginning with the 2010-11 FAFSA are designed to reduce these errors, there are other safeguards. Hart recommends the online FAFSA at fafsa.ed.gov, which will alert you if you leave questions blank and can recognize some obvious errors such as household income of $50,000 combined with $40,000 in taxes paid.
3. “Our low tuition rate means less financial aid.”
Many parents who haven’t saved enough for college tell their high school seniors not to consider pricey private schools. But, those colleges may be the more affordable alternative. “The more expensive and prestigious the school, the more likely it is well-endowed and can meet 100% of need,” thanks to alumni donation campaigns, says Marcia Sullivan, a certified financial planning professional and advisor at Bedford, Mass.-based College Funding Advisors, a college planning and financial aid-consulting firm. “You might be sending your kid to a state school that for you costs more than Harvard, MIT or Stanford,” she says.
Still, in some cases where colleges have suffered losses in their large endowments or budget cuts, there could be less financial aid to go around. In colleges that consider need, but doesn t guarantee help, there is likely to be closer scrutiny of applications, says Jim Boyle, president of College Parents of America, which helps parents with college planning. Only a small number of schools meet the “full-demonstration” need where the school pledges to fill each accepted student s full financial need. In these colleges, there should be no effect, because the school will offer whatever aid is needed.
4. “You’ll pay dearly for early decision.”
Early-decision admission is a big temptation at highly competitive colleges: Students can apply months before other applicants as long as they promise to attend if admitted. There s also early action, which isn’t binding. All these are ways to let students tell colleges they really, really want to be [there], says Linda P. Taylor, a certified college-planning specialist in Camarillo, Calif.
Sometimes, though, when it comes to getting financial aid, early decision can backfire. Why? Your commitment to attend if accepted means you have less leverage. “If you went to an auto dealership and threw yourself across the hood of a car and told them you would do anything to have that car, you’re not in a very good negotiating position,” she says.
If scoring financial aid is top priority, you’re better off not applying early and applying with the general applicant pool. That’s especially the case if your kid’s SAT scores and GPA are above the college median, and they excel in extracurricular activities. If such a student applies in the spring and gets admitted, they ll have a better shot at negotiating a strong financial aid package than if they d gone the early-decision route.
5. “We’re not buying your pauper act.”
Parents are often tempted to cheat the financial aid system by trying to look poorer on paper. There are, however, some acceptable ways to adjust your assets to maximize your child s financial aid potential. One is to trim assets held in the child’s name in particular, custodial accounts (UGMAs or UTMAs) up to 20% of which the college financial aid system will say should go toward next year’s tuition. For assets in the parents’ names, the rate is a much lower 5.64%. Especially in cases where parents expect to incur children s expenses, they should use these accounts to pay for them. “Technically, parents can’t touch UGMAs except for the benefit of the child, above and beyond food and clothing,” says Sullivan. But “you can use the UGMA to pay for things like summer camp, tutoring, school trips, or a car for the kid, thus diminishing the account.”
If your child is a few years from college, try to contribute the maximum to your 401(k) or IRAs. Consider it forced savings for the long run, and colleges won’t expect you to tap retirement savings to pay your share of tuition. Parents looking to sock away some free-floating cash could give up to $13,000 each any more will trigger the gift tax to grandparents or other relatives they trust outside the household, who could then help pay tuition bills; aid officers can’t touch their assets.
6. “When it comes to assessing your need, we’re not always very sympathetic about your expenses.”
For homeowners, the value of your house doesn’t get considered in most financial aid formulas. By the same token, if you’re paying a jumbo mortgage or sky-high property taxes colleges likely won’t be too sympathetic.
To determine aid, colleges calculate your expected family contribution from your adjusted gross income and assets. They usually don’t consider your disposable income or how cash-strapped you might be after paying the bills. “A moderately high-earning family spending most of its income on housing and other necessities may find that their expected family contribution is difficult or impossible to meet,” says Roger Dooley, a vice president at Hobsons, which works with education professionals in high school and college.
When writing or speaking to an aid officer during the application process, emphasize involuntary costs, such as taxes or high medical expenses. Play down voluntary expenses, like your mortgage or payments on an expensive car. Most financial aid officers are likely to be unsympathetic if a family cites high car payments as one reason for needing more aid, since presumably driving a car with a high lease or loan payments is not a necessity, says Dooley.
7. “We’ll let you borrow more than you can afford.”
Vickie Hampton, a professor of financial planning at Texas Tech University, knows that being well educated can make you poor. A colleague of hers, she says, racked up more than $100,000 in debt while earning a Ph.D. in English but ended up with a job where she couldn t use her degree. “There’s very little probability of her paying that off in her lifetime,” Hampton says. The predicament isn’t unique as more students take on excessive debt to finance degrees that lead to jobs in relatively low-paying fields. Unfortunately, college financial aid offices rarely discourage these decisions.
When a student must borrow, they should exhaust the federal programs first. Perkins loans and subsidized Stafford loans are best; Perkins loans have a 5% rate. For 2009-10 rates on subsidized Stafford loans are 5.6%; for 2010-11, rates are 4.5%. With both loans, the government pays the interest while you re in school. The Perkins, which is awarded to students with exceptional need and which students pay back directly to the school, is the slightly more flexible of the two offering longer grace periods. Beware of unsubsidized Stafford loans, which your college may offer if your family doesn’t qualify for subsidized loans. Although these loans have fairly low rates of 6.8%, interest will accrue from the moment the loan is made even though payments aren’t yet required.
8. “Outside scholarships help us, not you.”
Sure, you’re proud of the five scholarships your high school senior won from community groups and a local church, but don’t be relieved just yet. Unless you weren’t counting on any financial aid at all, those scholarships might not make a dent in the total amount you’ll owe. Why? Federal guidelines mandate that outside scholarship money be considered a resource in meeting financial need. This means you can’t use the scholarship dollars toward your expected family contribution, and the college can reduce the amount of aid coming your way. “Many parents mistakenly think their cost will be diminished and then are disappointed to learn that it will actually be the grant from the school that is diminished, thus saving the college money and not the family,” says Parnell Hagerman, associate head at the Oldfields School in Glencoe, Md.
But applying for outside awards can help students if they re looking at a financial aid package that features more loans than grants. Ask your college if it can reduce the loans first, says Patty Hoban, aid director at Willamette University in Salem, Ore. In that case, a few scholarships could still save thousands of dollars in interest. Secondly, it can reduce work-study, which is need-based.
9. “We won’t ‘negotiate,’ but we might ‘review.”
College financial aid guides have long urged parents to negotiate with aid offices, often suggesting that you bring a better aid offer from a “competing” school to get them to give you more money. But many aid directors hate this tactic. Some schools have strict no-negotiation policies, while others are only a little more approachable. “There’s certainly no harm in asking a college to review an aid decision,” says Mark Lindenmeyer, financial aid director at Loyola University Maryland. But “we do not negotiate, and we do not match other colleges aid offers.”
So how do you request a “review”? When contacting your aid office to discuss your child’s package, start by avoiding such words as “negotiate” or “bargain,” says Virginia Tech’s Simmons, and don’t throw another school’s financial aid award in an officer’s face. Instead, thank them for their work and the school’s generosity, and follow up by expressing doubt at being able to meet your family’s contribution. If you haven’t already done so in writing, explain any special circumstances you have, such as recent unemployment, a death in the family or medical bills. Then politely ask if there’s anything the aid office can do to help. Once you’ve established a rapport with the officer, try casually mentioning that you have a competing offer and where else your student has been admitted. At the very least, aid officers may refer you to outside borrowing opportunities or payment plans.
10. “Thought freshman year was expensive? Wait till senior year.”
Your kid just got her award letter and scored a large four-year grant covering most of her tuition, with a small loan for the rest. So you’re set, right? Not necessarily. Two problems can get in the way. First, the amount of federally subsidized loans a student can borrow typically increases slightly each year; as a result, the college may expand the loans it offers in subsequent years and downsize grants. Second, many parents and students assume that four-year merit-based awards will keep pace with tuition hikes. That’s not always the case. “Not all schools can afford to be that generous,” warns Willamette’s Hoban.
Nationwide, the average private college price tag jumped 4.4% for 2009-10 from the previous year with the average total cost for resident students at private colleges now just over $39,000. Assuming a steady 4% annual price increase and, say, $15,000 in aid each year, the $24,000 difference you paid on your student’s freshman year could grow to $29,000 by senior year.
If your child receives merit-based aid, ask whether the college can adjust it for tuition inflation. And, make sure your child maintains a top GPA; otherwise, they could lose their merit scholarship.
Category: Money Matters