There are a lot of misconceptions about financial aid starting with who qualifies. If you’re hoping to maximize your chances of pocketing
financial aid dollars, you should know what’s out there for families
like your own. As mentioned in an earlier chapter, the best way to
get a verdict is to use an online calculator at FinAid (www.finaid.org)
or the College Board (www.collegeboard.com).
Beyond cranking out your own numbers, looking at figures compiled
by the U.S. Department of Education’s National Postsecondary
Student Aid Study should be illuminating. In the study, the federal
statisticians broke down the percentage of undergraduates receiving
financial aid into six different income categories—the highest category
contained families making at least $100,000, and the lowest were
families earning less than $20,000.
More than 76% of the poorest families received federal assistance,
while 39% of the wealthiest parents did. But this doesn’t tell the whole
story. More than 73% of the poorest families received federal grants,
which don’t have to be repaid, compared to 1% of the most affluent
parents. And they weren’t the only ones shut out of federal grants. The
percentage of families making between $60,000 and $79,000 who
received federal grants was 3.7%.
Nearly all the federal aid that families with annual incomes of
$60,000 or more received was via loans. Consequently, it’s important
to understand that if you’re hoping for federal financial aid and you
make $60,000 or up, you will be angling for loans. Even families earning
between $40,000 and $59,999 had difficulty qualifying for federal
grants—just 21.5% in the study snagged one. This is obviously
depressing news, but it’s better to know it now.
Affluent families will experience better luck if they aim for institutional
financial aid, which schools dispense using their own criteria.
While public schools have some discretionary money, it’s the private
schools that dole out much of it. What’s amazing—and what financial
aid critics would condemn as despicable—is that wealthy families
enjoy just about as much chance of nabbing institutional grants as the
desperately poor kids. According to the federal study, nearly 29% of
families in the top income category received institutional grants versus
36% for those in the lowest bracket. About 34% of families earning
anywhere from $40,000 to $99,999 pulled in grants too.
Here is the take-home message: If you want need-based grants,
private schools or public schools that are aggressively trying to boost
their U.S. News & World Report rankings are good places to look.
Armed with this knowledge, here are two more ways to boost your
chances of financial aid:
Fill out the FAFSA. All parents should submit the Free Application
for Federal Student Aid (FAFSA) because their children won’t be
eligible for federal or state aid without it. Wealthy parents sometimes
skip this exercise because they figure it’s pointless. Some schools, however,
will not award merit scholarships unless families have jumped
through the financial aid hoop. This can be required even though
these awards are supposed to be based on academics, student talents,
or some other criteria that have nothing to do with family finances. If
your child is applying to a school that uses the CSS/Financial Aid
PROFILE, submit that one too.
Know what assets count in aid calculations. Ironically, families
who qualify for aid frequently assume that they won’t, and families
who won’t get a handout assume they will. A lot of the confusion
arises from what jeopardizes a person’s chances for aid.
Like my friend, many parents assume that they will be disqualified
if they possess substantial retirement accounts. Only a small fraction
of schools, however, are interested in cash that’s stashed in these
accounts.
Actually, most families won’t even be penalized for the money
saved in other types of investments either. Federal aid rules permit
families to shield cash from the aid formula by using the so-called
Asset Protection Allowance. How much money you can shield
depends on whether a household has one or two parents and the age
of the oldest parent. Here is an example from the 2008–2009 school
year: If a student lives with both parents and the oldest parent is 51,
the family is entitled to an allowance of $50,500. If the oldest parent
is 49, the allowance drops to $47,900.
You can find the current Asset Protection Allowance table by visiting
the Federal Student Aid site at http://studentaid.ed.gov/. Once
there, click on Tools and Resources and then click on Publications.
The table is published in an annual document entitled the EFC
(Expected Family Contribution) Formula that’s updated yearly. The
EFC represents what a school will expect your family to pay toward
one year of your child’s education.
The PROFILE’s asset protection formula, which is based on the
consumer price index, is slightly different. Regardless of which formula
is used, only a small fraction of families have their EFC hiked
because of parent investments.
Here’s another common misconception: We’re sure to get
rejected because our house is worth too much. This is a frequent fear
on the West and East Coasts and other places where real estate values
are high. But here’s the good news: the FAFSA doesn’t give a hoot
about your house. You could live in an oceanfront mansion in Malibu
or a one-bedroom lean-to without running water, and it makes no difference
because the FAFSA doesn’t even inquire about the family residence.
Many private schools, however, will be curious about the value of
your home. But even so, home equity is unlikely to jeopardize aid for
many families because colleges typically cap the figure.
Action Plan
• Regardless of your income, always apply for financial aid.
• Understand what assets count in the aid formulas.
Source: The College Solution: A Guide for Everyone Looking for the Right School at the Right Price
