A Degree of Urgency : New Financial Aid Rules Mean Students Must Act Quickly

When student aid application season officially began in late January, Kim Chastang didn’t waste any time.

“I’ve been bugging my mother to get her tax information to me in a hurry,” the USC sophomore said. “I want to get this in way before the deadline.”

Because she works in USC’s financial aid office, Chastang had early access to information that many other students are now discovering: If you don’t apply quickly this year, you may not get much money.

Financial aid rules were dramatically liberalized last year, allowing millions more students to qualify for financial aid. Yet, thanks to the sluggish economy and government budget deficits, federal and state student grants and scholarships are shrinking. That has made it more important for students to seek private, local and college-based aid, which is largely given out on a first-come, first-served basis.

Savvy students are therefore rushing to complete their applications now.

School aid counselors say they are just beginning to get the first applications in what is expected to be a record year. USC, for example, expects to receive thousands of aid applications in the coming month. The school is hiring extra aid counselors to deal with the expected crush of applications, particularly for student loans. Federal rules now allow nearly anyone to apply for student loans that were once restricted to needy families.

Occidental College in Los Angeles says its financial aid office is being inundated with phone calls. The applications haven’t started rolling in yet, says Youlonda Copeland-Morgan, director of financial aid, but the college, which boasts 1,647 students, expects to process several hundred more applications for aid this year.

In New England, “there is virtual hysteria because the Ivy League schools all have early (application) deadlines, and the federal aid applications came out so late,” said Kalman A. Chany, a New York-based financial aid consultant and author of “The Princeton Review/The Student Access Guide to Paying for College.”

The trigger for the application rush was Congress’ passage last year of the Higher Education Act. It reauthorized many federal student aid programs while making significant changes in the way aid is granted.

The changes were generally meant to help middle-income families, who didn’t qualify under previous rules for aid but who increasingly found they couldn’t afford the rapidly escalating price of a college education, particularly at private schools. Most notable among the changes: Mandatory student contributions were pared, and the federal government no longer expects families that own homes to borrow against their equity to finance their children’s education.

The result is that millions of students who previously couldn’t qualify for need-based aid now do. And millions more, who still aren’t deemed “needy,” can get student loans that were once reserved for people whose parents earned less than $50,000 a year.

As a result, federal officials are expecting nearly a 30% hike in aid applications--that’s an influx of about 1.5 million students.

But despite the liberalized rules, there’s less grant money available from both federal and many state governments, including California.

Indeed, aid is getting so scarce that “coffee table talk” indicates that some schools may not accept students who need a lot of financial help, said Cliff Sjogren, dean of admissions and financial aid at USC. Few schools have taken such dire measures to date, he added. But if aid continues to evaporate, it may become standard.

To illustrate, consider what’s happened to federal Pell grants--the cornerstone of U.S. financial aid programs. In the 1992 school year, the U.S. government gave $6.43 billion to about 4,259,000 students under this program. In 1993, $6.31 billion is available, and it must be spread among about 4,336,000 students.

The same thing has happened in California. Last year 75,664 students shared about $181.2 million in aid through the CalGrant program--the cornerstone student aid program in the state--and a handful of other smaller state scholarship and grant programs. This year, 76,224 students are sharing $157.8 million. State education officials have asked for a bit more CalGrant money for the upcoming school year, but there’s no assurance they’ll get it.

Both federal and state governments have budgeted more money for student loans. However, those who want to limit the amount of debt they face when graduating must increasingly turn to private, local and college-based awards, which are given out on a first-come, first-served basis, aid experts say.

Those who apply before school application deadlines get “priority” consideration, author Chany said. That means they’ll have access to grants, loans and scholarships from federal, state, local and college sources.

“If you are not in priority consideration, you are in trouble,” Chany said. “You get only what aid is left over.” That’s usually just the federal and state money. And this year, that’s not likely to be a lot.

School deadlines vary, but aid applications usually must be in before late February or early March. Some schools have January deadlines, Chany said, but because federal officials were slow getting out their financial aid forms this year, most schools will waive early deadlines for students who ask.

Regardless of the deadline, parents and students are being advised to get cracking on their applications now for several reasons.

Although Congress attempted to make the application process simpler with the higher-education bill, it has actually gotten more complex. That’s because some schools--particularly expensive private schools--are not going along with all of the new federal aid guidelines. So they’re making students fill out two--sometimes even three--separate applications for aid: one for the federal government, one for the school and another for state aid.

Many of the questions on these forms look similar but they’re not identical, Chany said. So applicants must read each application carefully and provide exactly what’s required. Mess-ups can cause your request to get kicked out of the system and returned, which may cause you to miss the priority deadline--and potentially a lot of aid.

The applications are first sent to national processing centers, which run the forms through computers designed to determine eligibility by matching your circumstances to the financial aid formula. The processing centers then send your application and their recommendations to the colleges you’ve selected. The colleges then match what you need to what they have available.

In high season, the processing centers can get bogged down--just like the IRS at tax time. That could cause processing delays and hold up your access to aid. Additionally, if there’s a problem with your application, you want to allow plenty of time to get it back and resubmit it before the priority deadline.

Financial Aid Tips

How well you fill out financial aid applications could have a significant effect on the amount of aid you’ll be granted. Aid counselors say savvy families can sometimes increase aid eligibility by thousands of dollars.

Here’s a short guide to getting the most student aid:

Determine deadlines. Schools publish deadlines for “priority consideration” of student aid applications. If you miss the priority deadline, you can miss out on thousands of dollars in grants and loans that are given on a first-come, first-served basis.

Get organized. To fill out financial aid forms, you’ll need W-2 forms, 1099s, bank statements, mortgage statements and the like. If you normally give these to an accountant to file your tax return, make copies so you don’t have to wait to get them back to fill out the aid form.

Tax forms are pivotal. A completed tax return helps when filling out aid applications. But which tax form you complete can also be pivotal. If you earn less than $50,000 and can fill out either the 1040A or 1040EZ forms, the federal financial aid formula will not take into account your accumulated assets, said Kalman A. Chany, a New York-based aid consultant. That can significantly boost your aid eligibility.

Of course, those who have capital gains or itemized deductions have to use the longer federal tax forms, which knocks them out of the running for this loophole. But if you don’t, make sure you stick to the short forms. Notably, if you get your taxes professionally prepared, your accountant will probably fill out the long form automatically. That’s because that’s usually what’s provided on tax software programs. Ask your accountant to do the short form when possible.

Pay attention to details. If you don’t complete the aid application correctly, it can be kicked back to you. In some cases, you can even be disqualified from getting aid, says Dan Parker, a spokesman for the California Student Aid Commission.

Choose the correct writing implement. Some aid processing centers require applications completed in pen. Others require pencil. If you use the wrong one, your application gets kicked out of the computer and returned to you.

Divorce figures in the equation. Most colleges require financial information only from the custodial parent--the one who has the student most of the time. It doesn’t matter who gets the tax deduction. If the student lives with you more than half the year, it’s your finances that matter.

If you remarry, you must provide your new spouse’s financial information. And it will go into the equation to figure your child’s aid, even if you have a prenuptial agreement stating your new spouse isn’t responsible for paying for Junior’s college. Chany suggests that those who have college-age children delay remarrying until after the children graduate.

Retirement savings don’t count for financial aid purposes. Financial aid applications ask for information about your savings accounts, and many parents include retirement savings on that line. Don’t. If you have accumulated savings in 401(k), individual retirement account, Keogh or other segregated retirement savings accounts, you don’t need to report it on federal financial aid forms. You only have to report that year’s contributions to those accounts. By reporting your retirement money as general savings, you’ll vastly reduce your aid eligibility.

The Student Aid Squeeze

The cost of a college education has been rising steadily Here’s the average annual cost of tuition and fees at four-year schools.

But funding for the cornerstone federal financial aid program--the U.S. Pell Grant--was cut back for the current school year while the number of students getting Pell Grants has risen. The end result: fewer Pell dollars per student.

Money available Grants Average to students awarded award per school year (in billions) (in millions) student 1988-89 $4.48 3.30 $1,358 1989-90 $4.71 3.28 $1,438 1990-91 $5.27 3.67 $1,435 1991-92 $6.43 4.26 $1,510 1992-93 $6.31 4.37 $1,455

Source: College Board, U.S. Department of Education