Would you or your child like to apply for college but aren't sure how you're going to pay for it? Has it been years since you've been in school and you'd like to continue your education without going broke? Are you overwhelmed and confused by all the financial options available today? If you think you have to be rich to go to college, think again!
College Financial Aid For Dummies cuts through the financial jargon and provides you with tips, techniques, and suggestions for navigating the financial aid maze and getting the money you need for college.
Inside, you'll discover how to
- Understand the differences between scholarships, grants, loans, and work-study programs
- Locate aid sources from the government, schools, private organizations, employers, and more!
- Organize your finances and plan for your entire college career
- Use your good grades, special talents, and other achievements to qualify for merit scholarships
- Fill out financial forms with ease and avoid costly mistakes
- Use the Internet to find the money you need, submit aid applications, and more
- Discover alternatives to paying back your loans and design a payment plan that works for you
College Money: Who Gets It
In This Chapter
- Bringing middle-income families in from the cold
- Previewing central concepts of aid
- Shifting assets to qualify for more aid
As a student or parent paying college bills, do you agree or disagree with the following statements?
- Middle-income students are shortchanged when financial aid is passed around. (In financial aid circles, middle-income families are defined as those with annual incomes of $45,000 to $95,000; upper-middle incomes continue to about $150,000. We don't have enough fingers and toes to count higher than that.)
- If you had lots more money, or lots less, paying for college wouldn't be a problem.
- The American financial aid system punishes families who work hard and save their money.
A recent national survey reported in Student Poll (a product of Baltimore's Art & Science Group, Inc., institutional marketing consultants to higher education and the nonprofit sector) confirms that a whopping majority of people who pay tuition bills say the financial aid system doesn't meet the requirements of the beleaguered middle class.
"On paper it looks as though we have a big income," says Greta, a Virginia mother whose family is experiencing the sticker shock of college costs. "We're not going hungry, but we have old cars, and my husband's job may set sail at any time. We don't eat meals out, buy more than the bare minimum of clothing, or take vacations. Every dime we can hang onto goes toward tuition."
Does the grim perception of aid for middies have roots in reality? Yes, it does. But in this book, we show you moves and techniques to enhance your eligibility for a larger chunk of financial aid -- a term which we often shorten to finaid. We tell you what you need to know about how the financial aid game is played today and what middle-income families, especially, can expect.
Sometimes (Groan), It's Loan-ly Out There
When the tuitions are up and the chips are down, where do you turn?
You can't get around it: Loans and more loans are most of the solution for middle-class families who don't go all out to dig up the gold. The bulk of financial aid arrives in education loans for which the student or family may have to pay interest -- often while the student is in school.
Colleges are more likely than banks to operate borrower-friendly loan programs with low interest rates. Many colleges offer novel plans to help all students more easily bear the burden of steep tuitions. In addition to low-rate loans, alternative financing plans may include such features as lengthy repayment periods, tuition installment plans, and deep discounts for prepaying tuition.
Even so, the growing indebtedness for education terrifies parents and worries educators who fear that students are mortgaging their futures. Students and graduates now owe more than $30 billion borrowed from federal programs alone, not counting loans from schools, financial institutions, and private organizations.
We join the crowd in shrinking from the prospect of heavy debt loads that grind down youth as they begin carving out careers. We're shocked to hear about two-year community college graduates who start their working lives owing $14,000, or bachelor's degree holders forced to take jobs they don't want because they're saddled with a $30,000 debt. These scenarios seem unfair to those of us who graduated debt-free in decades when education was more affordable and aid more generous.
But in dealing with realities, the hard truth is that in the late 1990s, a sizable loan may be the only ticket to higher education in an era where a college degree is mandatory for professional positions.
Virtually any family, however affluent, can borrow the entire cost of college, however expensive. There's no such thing as making too much money for an unsubsidized loan -- you can make a million dollars a year and still get an interest-bearing federal Stafford or PLUS loan (described in Chapter 7).
If you get chills thinking about taking out loans and making monthly repayments over the next 20 years or so, turn to Chapter 10, which identifies some of the cash you're allowed to keep.
Scouting Out Gift Money
Here's a sampling of potential "keeper" perks that middle-class families and others can take advantage of:
- Schools feeling the competitive heat are in bidding wars. They use financial aid as a powerful marketing tool. Even famous schools woo fence-sitters whom they really want with honeyed offers that are hard to refuse.
- Organizations, civic groups, and corporations hand over private scholarships.
- Looking for help close to home -- from local businesses and civic groups, for instance -- will reveal a raft of small but valuable awards to local students.
- Certain majors (such as health, science, and engineering) get more than their share of student aid.
- Military commitments (ROTC) pay tuitions and more.
And remember, state schools and community colleges themselves constitute aid in the sense that taxes keep their tuitions below market rate for local residents. So explore all your options; college can be in your future regardless of your income.
Pricey Schools May Not Be Out of Reach
A four-year education at elite schools is costing out at $130,000 to $150,000. Do you feel a vow-of-poverty attack coming on? Should you forget about an expensive education?
Don't write off expensive schools just because their tuitions leave a space as big as the Grand Canyon between your will and your wallet. Make the effort if that's what you want, because your costs may be roughly the same whether you attend a college topping $25,000 or one dropping as low as $5,000 a year.
The amount that your family is expected to pay remains about the same no matter where you enroll. The more expensive the college, the more aid for which you are eligible. All you need is to apply and qualify academically. At least, that's the way the system is supposed to work -- and, very often, it does. Academically speaking, however, schools have fallen on difficult economic times.
Although most schools still insist that they hew to a need-blind admissions policy, which means that the decision to accept or turn down an applicant is made without regard to that student's financial need, many educators admit privately that students who can pay have the edge over equally qualified students who are less able to pay.
In practical terms, all but the most selective and well-endowed schools tilt toward students who can pay their way without dipping into the institutions' coffers. (For a list of colleges and universities with deep endowment pockets, see Chapter 6.)
Keeping your nose in the books is the key to snagging merit scholarships. The people handing them out are GPA groupies. They love applicants who emerge from high school in the upper regions of their class and demolish SAT and ACT tests as if they were child's play.
Some colleges, for example, knock 40 percent off tuition to students who graduate in the top 5 percent of their high school class and are selected for a grant; others give the best students whatever money they need to attend -- the best students being those graduating in the top 2 percent of their class, with a GPA of 3.9 out of 4.00 and SAT scores higher than 1450.
The bar is high, too, for those who leap over it to win sports, music, drama, or art scholarships: Both talent plus academic achievement often must be stellar.
But what if talented applicants have only so-so grades? They may still make the scholarship cut. Sometimes talent outweighs academic records by a country mile -- just ask any football coach.
Colleges frequently aim their merit scholarships toward students they want but who may not show up without the inducement of serious aid. Aid offers are designed with an eye toward the school's diversity mix of brains, talent, and cultural composition.
If you're lucky enough to be in the most-wanted category -- with some combination of great grades, leadership activities, fine arts ability, desirable major, geography, or minority status -- don't let the school know that your enrollment is a done deal or its limited aid budget may go to those who need persuasion.
Popular essay topics for finaid applications
Pick five topics below most likely to apply to your situation. Write a 500-word essay on each and file for your core essay database. If you don't know how a good academic essay should read, get a copy of 100 Successful College Application Essays by Christopher J. and Gigi E. Georges for samples of some great ones.
While essay topics are never entirely predictable, here are some scholarship favorites:
Suppose your talent is nonexistent. Your grades are in the "not bad" category, and the processional line between you and the valedictorian is 200-people deep. You may get admission but probably no federal grant aid whatsoever from elite schools, regardless of how strapped you are. If your middle-class family's income tops the federal and state aid caps (adjusted to about $40,000), you need to shop for low-interest loans. However, these same colleges may offer you funds from their own resources.
Qualifying for Finaid (Financial Aid)
Question: Who qualifies for college financial aid?
Answer: Surprise! You and most of the people you know!
If you and your family do each financial aid task (1) correctly and (2) in a timely manner, you will receive student financial aid of some kind.
Although each aid program defines its own special criteria, certain eligibility requirements are common to virtually all programs:
- You must be enrolled in an eligible program at an eligible institution. The finaid program defines what is eligible.
- You generally must show satisfactory academic progress toward a degree or certificate to keep finaid.
- Typically, you must be "in good standing" with the institution you attend.
- For federal student aid programs, you must be a United States citizen, or a noncitizen who is a permanent resident. Refugees or those granted political asylum may be eligible.
- Aid programs sponsored by colleges and private organizations may require that you be a U.S. citizen or permanent resident.
- As a rule, you must be a legal resident of the state from which you seek finaid to receive it. Out-of-state residents may be able to participate in state-backed loan programs.
- Many finaid programs require that you be at least a half-time student (six semester hours of courses per semester, or the equivalent).
- Some programs sponsored by schools and private organizations require that you attend college on a full-time basis (12 semester hours minimum).
- International students qualify for special programs sponsored by colleges and private organizations. (See Chapter 2 for more information.)
Rarely are less-than-half-time students eligible for federal funds. The exception is Pell grants, which can be used for less-than-half-time students; you just won't receive as much as if you were enrolled full-time.
Unlike federal programs, state aid programs may not consider vocational-technical school students eligible for some aid programs. Other types of study that may not qualify for aid from various programs include religious studies and voc-tech programs of less than six months' duration.
Perceived versus demonstrated need
Need means the amount of money your family can't afford to pay for your education -- it's the difference between the cost of your college education and the dollars your family is expected to ante up for college expenses. Need does not mean poverty status.
The concept of need has a particular meaning in finaid offices, however. You may tell your college financial aid counselor you have need just because you're on thin shoe leather, and bill collectors are hot on your trail. While that's not a good position to be in, aid givers consider that type of informal reporting as perceived need. It doesn't mean a thing to them.
What you have to do is show demonstrated need, as explained in Chapter 3. You do so by filling out a mass of paperwork supported with financial documents. The complex paperwork evaluates families' income and assets to determine how much of the overall college tab individual students and their parents can afford.
Financial aid personnel at various schools put approximately the same ceiling on how much they expect a family to pay, regardless of costs at their college. Once you're accepted for admission, they try to offer an aid package that makes up the difference.
Expect aid packages to be a mixed bag
The aid package, described in greater detail in Chapter 3, is comprised of self-help money and gift money. Self-help money includes work-study jobs and loans that must be paid back. Gift money includes grants (based on demonstrated need) and scholarships (based on merit), which aren't paid back. Gift money is also called free money. Once you grasp the concept of demonstrated need, you can act to increase your eligibility for aid by following the advice given throughout this book.
Financial aid for students with disabilities
Students with disabilities may face such additional expenses as special equipment related to the disability and its maintenance, expenses of services such as readers, interpreters, note takers or personal care attendants, special transportation requirements, and medical expenses relating to the disability but not covered by insurance.
Scholarships specifically designated for students with disabilities are very limited (see the Resource Guide at the end of this book). If you have a disability, be sure to pursue scholarships available for qualities other than disability.
In addition, the state vocational rehabilitation agency, as well as organizations of and for people with disabilities, may be able to help you realize your college goal.
Moreover, at each college, students with disabilities should ask about financial support not only at the financial aid office, but at the Office of Student Services, 504 coordinator, or Office of Disability Support Services.
For a fuller discussion of available resources for college students with disabilities, obtain an annually revised information paper, Financial Aid for Students with Disabilities. The paper is free. Order from:
HEATH Resource Center
A Plan for the Long Haul! Way to Go!
When you get into the college financial aid game, approach it with a four-year plan that allows you to shift assets and avoid eating beans when tuition deadlines strike, as the following story illustrates.
Both of Hilton's parents worked and were proud that they could send their son to an Illinois name-brand university. But last year, when Hilton, a sophomore, returned home to Maryland for the December break, they broke staggering news:
Mom lost her job. We can't afford to send you back to your school for the spring semester. Sorry, we'll try again in the fall.
Hilton's family had not sought college financial aid when he graduated from high school, assuming that their family income -- $78,000 -- was too high to qualify for more than good wishes. And Hilton was neither scholar, jock, nor talented musician, so the idea that a "good" school would offer Hilton a bundle of money to grace its campus was unlikely. What's more, the family found the complex financial aid process to be just too much trouble.
Hilton's parents had saved a few dollars and assumed that with their jobs and careful money management, they could handle Hilton's college. They would deal with the tuition year by year.
All went as anticipated until Mom lost her job and Hilton's college costs threatened to sink the family. Good news: Mom landed another job within a few months, and Hilton returned to his college in the fall. Bad news: Hilton unnecessarily lost a semester of school because he failed to file an emergency appeals letter with his school. He didn't know he could.
The moral to Hilton's story is apparent:
- Learn as much as you can about the college financial aid system.
- Use that knowledge to plan how to pay for all your college years.
- Ask questions; don't assume.
Playing the Aid Game: Asset Control
The key to getting aid based on your financial status is clear: The more impoverished you look, the more aid you get.
For example, aid-analysis programs require you to count your savings in regular taxable accounts as wealth, not the savings you have in your home equity, retirement accounts, and cash-value life insurance policies. (Some schools, however, do throw all of a family's wealth into one big pot to measure how much aid the student's entitled to receive.)
Even Washington politicos are concerned that, with the exception of unsubsidized loans, the middle-income student gets the short end of the financial aid stick. The president and the Congress have responded with varying proposals to create a huge new (mostly middle-class) entitlement in the form of tax breaks. At press time, they had not yet come to a meeting of the minds. The end result is likely to be a compromise of some sort, giving middle-class students more than they have but less than they want.
Play or pay?
Autumn was just beginning, and Shawn, an outstanding California high school senior with a GPA of 4.9 (out of 4.0 -- extra points for advance placement college courses), was trying hard to get into Stanford on an early-decision basis. As the son of a single mother, inexpensive macaroni and cheese casseroles were a popular supper in Shawn's home.
When early February rolled around, Shawn was overjoyed to receive The Acceptance Letter. But he was surprised to find while the aid package was good, it was far less than he had expected given his mother's financially lean situation. The aid deficiency was due to a legacy of $20,000 his grandfather willed jointly to Shawn for school and to his mother for retirement.
If Shawn had had a four-year college-financing plan in place, his family could have taken steps prior to December 31 of his junior year to arrange the family's finances in ways that would increase the amount of financial aid Shawn would receive -- steps to increase his demonstrated need. Shawn, for example, could have bought a computer or car for college, both legitimate expenses.
What can Shawn do to improve his aid eligibility as he begins his first year of college?
Shawn should spend the legacy dollars on college tuition, books, supplies, room and board, and transportation. While a formal list of unacceptable expenditures doesn't exist, college aid officers will frown on blowing the money on such nonessential items as an expensive car or clothing, gifts, or luxury student housing.
Time line for moving student assets
The year before you attend college is the base year that colleges use to measure what you can afford to pay.
For first-year college students, the base year is:
the last half of your high school junior year (January May)
the first half of your high school senior year (June December)
In the year before the base year, your pre-base year, you should try to line your pockets: restructure assets, take capital gains from selling assets, and rake in bonuses or commissions before your base year begins.
During the first half of your base year (January through May), scale down your affluent image on financial aid applications by buying big ticket items with cash, paying off your credit card balances, and taking other capital losses to slim down income and assets like bonuses, commissions, and inheritances. Unless you're pushed into a financial corner, avoid taking money out of your retirement funds because finaid offices don't calculate that money when deciding how much you can contribute to the tuition pot.
Curious rules of college aid
Though the rules vary widely among schools, financial aid logic isn't always self-evident. Here are a few hypothetical illustrations of what seems odd to the finaid novice, followed by explanations.
Timely financial fix-ups
Table 1-1 provides a simple chart of when to redraw your financial picture. We assume you're applying for aid for the 2000-2001 school year.
Table 1-1 When to Redraw Your Financial Picture
Pre-Base Year (January-December 1998)
|Base Year (January-December 1999)|
Fatten your bank account by December 31, 1998
|Slim down your bank account|
Sell and shift assets
|Take unavoidable losses on assets|
To increase your aid eligibility, you can make these other short-term strategic moves. All of them should be accomplished prior to December 31 of your junior year in high school. (Or, if a nontraditional student, the year before you intend to apply for aid. See Chapter 2 for more about nontraditional students.)
Because need-analysis standards vary from school to school, make anonymous calls to target schools asking what specific assets are included in their calculations.
A key point to remember: Your ability to pay this year's tuition is based on your income and assets of last year. That's because colleges can't see into the future and verify your family's financial status this year.
Federal need analyzers don't count assets like the value of your car or home when they figure how fat a cat your family is. Nor do they subtract debts from your assets. But they seem to smell money in the bank, and they count every cent as an asset after the asset protection allowance. (Remember, the more assets, the less aid.)
Most of the following tips suggest that you shift cash into assets that aren't counted or pay off debts that don't help you look poor on paper. For instance, suppose you have $50,000 in a savings account but owe $20,000 on a consumer debt. The federal formula recognizes the $50,000 in your bank account loud and clear. Frustratingly, they ignore the $20,000 you owe. By withdrawing the money from savings and using it to pay your debt, and because you have a $30,000 asset protection allowance, your assets drop from $50,000 to zero. Presto! You qualify for more financial aid.
Here are pointers for parents to help reframe your aid eligibility. All of them are legal and legitimate. As an East Coast financial planner says: "There is no reward in heaven for paying extra money for college."
- Spend down and pass over. Any asset keeps you from receiving maximum aid dollars. Getting rid of the money by paying tuition and other legitimate college-related expenses is to your advantage as it can increase the amount of financial aid you'll receive every year after that.
- Reduce a child's kitty. Finaid administrators expect parents to spend 5.65 percent of their assets (and that's after subtracting an asset protection allowance), but they expect students to spend 35 percent of their savings each year for school with no asset protection allowance. If you're thinking of a tax savings, forget it -- the tax benefits of putting money in a child's name are small compared to the big cut in family finaid.
- Pay off consumer loans and home mortgages. Home equity loans generally reduce assets; so consider taking out a home equity loan to pay off automobile loans, credit card debt, or other consumer loans. Watch out: Although most schools don't count home equity as an asset, some do to determine eligibility for institutional aid only.
- Time your purchases. If you have assets of $50,000 or more, make major purchases before December 31 of a child's junior year in high school. If you are 45 years or older, for every $1,000 you withdraw from savings, the amount you're expected to fork over for college decreases by about $120.
- Time your income. If you plan to cash in high-performing stocks or other investments to pay for college, do so before December 31 of the year before you are evaluated for your aid award. That is, if you want aid in the 2000-2001 school year, try to report the big money before December 31 of 1998; remember that 1999 is the base year on which your income and assets will be evaluated. The same timing applies to extravagant bonuses or commissions -- although this timing is harder to arrange. Capital gains can inflate your income dramatically, and, if you sell after December 31, that boost in income will slash your aid eligibility the next year.
- Put assets off-limits. Rules are far from universal, but schools do not include retirement funds, such as 401(k)s and individual retirement accounts when totaling a family's assets for federal need analysis, but some higher cost colleges use these assets to measure a family's ability to pay.
- Start your own home business. Some parents, who have always wanted to operate a little business from home, reduce assets by making capital investments in their enterprise. The business, which is unlikely to make money in the initial years, probably will result in a tax deduction as well as more aid for their child. (Warning: Some colleges discount paper losses.)
Caveats when shifting assets
Keep the following caveats in mind when applying for financial aid:
- Some of the preceding strategies carry risk.
You could lose your investment in your home business, for instance.
- Tax accountants and financial planners can slash your aid eligibility.
Accountants and planners who lack in-depth knowledge of college financing can torpedo your chances to receive aid. Certain income strategies, such as shifting money to a child's account, may work well for long-term tax reduction planning but are ill-advised for the college years unless your income precludes grant aid eligibility.
- Before moving money out of a kid's name and stashing it in the parent's name, double check that the transfer passes two acid tests:
- Is the move legal with the IRS? Ask your accountant or the bank involved to be sure that no rules are broken.
- Do not transfer any asset until you determine that the action will give you the increased-aid-eligibility results you seek.
Too-clever asset shifting leads to ethics questions
Critics accuse some families of finding loopholes that cut ethical corners in a rush to look poorer on paper than they really are. Some parents outright lie about their income and assets, or they dramatically misrepresent them to the point of committing fraud. The argument is that shifty parents cheat the needy, loot taxpayers, and force colleges to squander money on detective work.
A few examples of questionable acts include
The Aid Chase: It's Not Over Until It's Over
Here's why you should ignore the advice of finaid nonprofessionals who come to the party dressed as experts: When school financial aid counselors award aid, they consider every situation individually. Awards depend on the size of the college's aid kitty at the time you apply and your specific circumstances. Would you have guessed that families with six-figure incomes could get aid? They do.
At Amherst, for instance, where yearly tuition and living costs are in the $30,000 neighborhood, 50 families earning between $90,000 and $105,000 last year received about $13,000 each, of which about half was gift money that doesn't need to be repaid. The remainder was given in low-interest loans and work-study jobs. That's not all. Sixteen families that earn more than $135,000 scored an average of $11,000 in aid per year, about half in gift money. Being called "needy" when you belong to a six-figure family isn't all that unusual at Amherst. Nearly 80 percent of applicants in the $90,000-plus group received aid; in the higher bracket (up to $135,000), 32 percent scored awards.
In the curious process of college financial aid, assuming that you don't qualify for assistance for any price range of college is a big mistake. Assuming that you're out of the running is a sure way to cheat yourself. In the financial aid game, our advice is:
Play out your hand until the game is over.
The following books, all published by IDG Books Worldwide, Inc., will help you with your college and financial planning:
Table of ContentsIntroduction.
Why This Book? We're Here to Help.
Icons Used in This Book.
Peering into the Crystal Ball.
Part I: Who Qualifies for Financial Aid.
Chapter 1: College Money: Who Gets It.
Chapter 2: What if You're Adult, Part-Time, International, or Other?
Chapter 3: Decoding the Financial Aid System.
Chapter 4: Dr. Davis's Comprehensive Finaid Calendar.
Chapter 5: College Costs: Upward and Onward.
Part II: How to Find the Aid You Need.
Chapter 6: Tapping the School's Own Aid.
Chapter 7: What Uncle Sam and Aunt Feddie Are Willing to Fork Over.
Chapter 8: The Shape of State Aid.
Chapter 9: Negotiating: Get Ready to Bargain.
Chapter 10: Merit Scholarships for the Talented.
Chapter 11: Keep Up the Good Work.
Chapter 12: Use This Hotlist and Get Wired for Finaid.
Chapter 13: Just the FAQs: Dr. Davis Answers Your Questions.
Part III: Finaid Planning for the Long Haul.
Chapter 14: Choosing a College Financial Aid Planner.
Chapter 15: Please Save for My College Education.
Chapter 16: Becoming an Educated Borrower.
Chapter 17: Can You Smile and Salute?
Chapter 18: Planning for Graduate and Professional Study.
Part IV: Filling Out Forms and Other Fine Print.
Chapter 19: Blooper-Proof These Lines.
Chapter 20: The Lines That Cross Up Your Finaid Chances.
Chapter 21: Figuring Out Your Best Deal.
Part V: It's Payback Time -- Or Is It?
Chapter 22: Can Your Loans Be Forgiven?
Chapter 23: Drowning in a Sea of Debt.
Part VI: The Part of Tens.
Chapter 24: Ten Ways to Grow Your Own Opportunities.
Chapter 25: Ten Strategies for Cutting College Costs.
Chapter 26: Ten Facts That Finaid Counselors Don't Tell You.
Chapter 27: Ten Common Goofs That Can Cost You Money.
Chapter 28: Ten Tips on Hiring a Computer to Help Find Aid.
Chapter 29: Ten Ways to Avoid Finaid Fakes and Frauds.
Scholarships by the Score.
Academic, Merit, Leadership.
Glossary of Financial Aid Terms.