Why disturb a family’s wonderment at the beauty of the campus and perhaps the school’s great perch in the U.S. News & World Report rankings with such prosaic concerns as how much this is going to
cost—much less where the money is going to come from?
But before your child heads off to college, you will probably end
up getting acquainted with the financial aid staffers who will be
bundling together potential financial aid packages for your child. By
the time the process is complete, these paper shufflers could know
more about your finances than perhaps anyone else on earth, even
more than the Internal Revenue Service does.
While colleges are entitled to learn the most intimate details of
families’ financial lives, most parents are clearly at a disadvantage in
this process. That’s because they typically harbor no clue about how
colleges make decisions. And if your strategy is to depend on the kindness
of a college administrator, you could very well be disappointed.
Mastering how financial aid is dispensed—or at least knowing
enough to benefit your own family—will probably seem about as
appealing as reading a digital camera’s instruction manual. But understanding
the basics is essential because the costs, especially for private
schools, can be staggering. Colleges don’t face the same predicament
as McDonald’s or KFC, which must agonize over the potential of losing
customers if they boost the price of a Big Mac or bucket of
chicken. Even Starbucks, which has so many of us addicted to lattes
and frappuccinos, has to be careful about raising its prices too high for
fear of turning caffeine lovers into tea drinkers.
Colleges, however, have not been punished for raising their prices
far beyond the rate of inflation each year. In fact, as perverse as this
may seem, some schools have jacked up their prices to attract affluent
families who assume that if the cost isn’t exorbitant, the school must
not be any good.
Colleges have been sitting in a supply-and-demand sweet spot.
Since the early 1990s, applications from high school seniors continued
to rise as the Baby Boomers’ children entered college. The number of
high school graduates, however, peaked in 2008 when roughly 3.34
million earned a diploma. More than 60% of those kids will be heading
to college. In contrast, the last time there was such a surge in applicants—
in the mid 1970s when the Baby Boomers were in their teens
and early twenties—less than half of high school graduates even bothered
with college.
Even after high school graduation rates have peaked, the number
of teenagers heading to college is expected to continue to grow as
more of them decide that a college education is essential. The difference
in lifetime earning power between a student who stops with a
high school education and someone who earns a bachelor’s degree is
roughly $1.2 million. The financial advantage between someone who
obtains a professional degree, such as a law degree, versus those who
are satisfied with a bachelor’s degree is an additional $1.7 million.
Thanks to the high price of a college degree today, two-thirds of
all families receive some sort of financial aid. But as you’ll learn, some
types of aid are infinitely better than others. Grants, which don’t need
to be repaid, are going to be far more welcome than a federally guaranteed
loan or work study. Not too long ago, 60% of the typical college’s
financial aid award was packaged with free cash. Loans
represented the other 40%. But today, those numbers have been
reversed. Loans now make up 60% of the average package.
Follow the Money Trail
You will increase your chances of obtaining a financial aid package
that is fair or even more than fair if you understand how the process
works. The families who get the most financial aid aren’t always the
ones who need it the most. Those who educate themselves will
increase their chances of walking away with a package they can celebrate.
But before you can do that, you’ll need to understand the basics
that you’ll find in the next eight chapters.
Action Plan
If you educate yourself on your financial and academic choices, you
are far more likely to slash the cost of college.
Source: The College Solution: A Guide for Everyone Looking for the Right School at the Right Price
