Early Planning Key to Financial Aid
Paying for a college education is among the greatest financial worries facing middle-income families. Although the cost of college has steadily risen over the last decade, access to financial aid--even student loans--has dwindled. Kalman “Kal” Chany, who runs a New York financial aid consulting firm called Campus Consultants, shared some advice with Times education writer Amy Pyle. Chany is the author of the “Princeton Review Guide to Paying for College,” now in its fifth edition.
Q: Can a middle-income family hope to receive any financial assistance for college?
A:In large part it depends on whether they plan. Most people think the first thing you do when you apply for aid is you fill out the forms. That’s the last thing you do. If you want to maximize your eligibility you really should start thinking about it when the student is in 10th grade. The year used to determine aid eligibility starts Jan. 1 of the student’s junior year in high school and ends Dec. 31 of senior year in high school.
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Q: But how do you increase your chances of receiving aid?
A: After Jan. 1 of the child’s junior year, you want to minimize capital gains, avoid pulling funds out of an IRA or a tax-deferred pension plan and refrain from cashing in savings bonds, all of which raise your income and reduce your aid eligibility.
Before the child’s junior year, if you’re going to pay in part with stock revenues, you should consider liquidating those. That’s when you want to start converting into safe, liquid investments and it lets you avoid the capital gain in the year on which the aid is based.
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Q: Can you bargain for more aid?
A: The colleges will deny that it happens, but I encourage my clients to do it and they tell me sometimes it works. Some schools actively encourage it, setting aside money in expectation that people will get better offers.
This is a consumer transaction. Compare the packages, understand who’s giving the better offer. It’s not necessarily who gives the most money, but how much you’re expected to pay as a family and how much the student is expected to borrow.
If you treat colleges like used car dealers, playing one offer off another, they’re going to get really upset. They like to think they are above all that. Instead, say, “Finances are a concern, we’d really like to come here, but other schools are making better offers.” Don’t lie about the other offers because in most cases the school you are bargaining with will ask you to fax them copies of the competing offers.
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Q: What are some basic do’s and don’ts of applying for aid?
A: Don’t wait to be accepted to actually apply for aid. Meet all the filing deadlines.
Do realize that it’s an adversarial relationship with the college. They’re trying to get you to pay the most amount of money; you’re trying to pay the least amount. Don’t assume that they’re going to help you maximize your aid, that’s like going to the IRS for help on your income tax return.
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Q: What is the greatest myth about financial aid?
A: Many people feel you have to be destitute to get any money. They feel if you make a certain amount of money or have a home, you won’t receive aid. While the theory is that money goes to the neediest people, the reality is it goes to the people who know how to manage and navigate the system.
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Q: What is the most common mistake people make in applying for aid?
A: They wait until the last minute to fill out the forms and get the wrong kind of help. Well-intentioned neighbors or friends who have gone through the process may have made mistakes themselves or may not be aware of changes. There are guide books available to help, there’s online stuff. People should think of applying for aid as taking out a second job: the pay’s not so bad and the income’s tax-free.
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Q: Should parents seek out independent scholarships?
A: I don’t recommend it. It’s like going for the crumbs of the aid pie because those awards are the smallest amounts. The school will reduce your aid by whatever you get, so it’s just a wash. I say go for awards that are local, where they know you. But receiving one of these big national awards? Your chances of getting struck by lightning are greater.
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Q: How do you see the financial aid landscape changing in the coming decade and what advice would you give to parents of elementary school-age children about planning for those changes?
A: Who knows what’s going to happen with the aid, so I recommend you start to set money aside, though you don’t have to have all the money there when the child arrives on campus. But you have to be careful and do your research. For instance, putting the money in the child’s name can come back to haunt you. If you have that money in the parent’s name, it’s assessed at 5 1/2 cents on the dollar for aid eligibility purposes. In the child’s name, they assess it at 35 cents on the dollar. You might even disqualify yourself totally if you put the money in the child’s name.
