Five Surprising Facts About College Financial Aid
As the cost of college continues to skyrocket, you should take heart – if you plan properly, you won't have to pay "sticker price" for your son or daughter's college of choice. Here are five facts about college financial aid that could help you slash college costs:
- Some Colleges Have More Money to Give Than Others. Most schools use the same financial aid formula to determine your financial need. However, they differ vastly in how they apply that formula. In other words, different colleges meet different percentages of your financial need. The older, prestigious private colleges – Ivy League and similar – tend to have large endowments. This endowment money fuels the financial aid awards that these colleges and universities dole out.
- Private, High Sticker Price Colleges Can Actually Cost You Less Under Some Circumstances. Even though one year of college at a state university can run around $20,000-$30,000 (tuition, fees, room and board, etc.) and a private college can top out over $50,000 per year, the more expensive college can cost you less! Why? Because state universities very rarely award significant financial aid packages, so many families float the entire cost. On the other hand, private colleges and universities with large endowments regularly meet 90%, 95% and even 100% of financial need. So don't rule out expensive private institutions until you examine their financial aid awards!
- Even if You Earn Six Figures, You Can Still Receive Substantial Financial Aid. This may be the most surprising fact of all – colleges and universities have courted the "forgotten middle class" in the last few years, regularly giving five figure awards to parents earning six figure incomes. Just because you think you make too much does not mean that you should blow off filling out the FAFSA and other financial aid awards – you may be pleasantly surprised!
- Your Student's Grades Have Little-to-Nothing To Do With Her Financial Aid Award. Many parents think that their child must have good grades to qualify for financial aid, but this is not correct. Most financial aid is based on financial need, not merit. Although a minority of colleges will award merit-based financial aid, most aid is issued on a need-blind basis. In other words, if your child is good enough on paper to get into Harvard, MIT or some other competitive school, she'll be issued aid based on how her family's finances look on paper. That's the way most colleges award financial aid.
- Although Two Families Can Have the Same Amount of Money Saved, One Will Receive Far More Financial Aid Because of Where They Saved it. It's a little known fact, but some assets count against you in the financial aid formulas more than others, and some don't count against you at all! In general, money saved in your child's name will penalize you more in the financial aid formulas than money held in your own name! (This is because the Department of Education reasons that you're going to tap money in your child's name for her education – this makes sense, but it also penalizes you for being thrifty…I'll stop her before I feel a political rant coming on!) So even though your stock-broker or CPA recommended you establish an UTMA account (Uniform Transfer to Minors Account) for your child, this could penalize you to the tune of 20-25% in the financial aid formulas. You could be better off holding this money in your own name, or in an asset class that's entirely exempt, such as retirement accounts, insurance, some annuities and some business assets.
Clearly this brief article will fall way short in making you an expert in financial aid. For more information, please visit our website and sign up for our newsletter – The College Success Bulletin - and receive five free reports worth more than $200 for the month of May.
Andrew Lockwood, J.D.
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Questions and Answers
Financially Challenged? There’s lots of free college information available online, and here are some of the most popular questions when it comes to student Financial Aid. Learn about the difference between grants, student loans and college scholarships and bank on your future!
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