The ABCs of college financial aid

Personal Finance

If you have a child heading to college in the next few years — or even in college now — there are a few things you ought to keep in mind this holiday season. That’s because parents of college-bound seniors will be facing complicated financial aid forms in January, and planning ahead means you’re likely to get more help.

Meanwhile, those with high school sophomores and juniors may want to take a close look at how they hold their assets before the year ends, since the economic “snapshot” that’s taken Dec. 31 of a student’s junior year can have a significant effect on the aid that child gets later.

“You’ve got to be assertive with the process,” said Kalman Chany, author of “Paying for College Without Going Broke.” “The theory is that student aid money goes to the people who need it; the reality is that it goes to the people who know how the system works.”


The best strategies to maximize aid will depend on where your child is in the college process. The earlier you plan, the better your options. So getting educated and involved even when your child first starts high school is smart. But you’re not out of luck even if your student is in his or her junior or senior year of college.

Here’s what you can do and when.

At least two years before college application

AP classes: Advanced Placement classes taken in high school can count as college units, if the student both passes the class and the requisite AP test following it. Although schools differ on how they accept the AP units, good grades in these classes almost always boost a child’s grade-point average and make the student more attractive as a college prospect. The more attractive the child is to the college, the more accommodating officials are to the need for aid, said Chany, who runs Campus Consultants in New York. Better yet, schools that accept AP units allow the student to take fewer college units, and that usually means lower college bills.

PSATs: High school sophomores and juniors should focus on studying for PSATs. The PSAT results are not provided to colleges. But the student’s score determines eligibility for National Merit Scholarships. These generous awards are given only to those who score within the top 1% of their state’s graduates, and who have both excellent grades and excellent recommendations from teachers. That makes the awards rare. Of the roughly 1.4 million students who take the PSAT each year, only about 8,000 win the $2,500 grant from the National Merit Corp.

But becoming a National Merit finalist can trigger eligibility for generous school-based merit scholarships that can range from several thousand dollars off tuition costs to a full ride. So studying hard for this test can reap many rewards. Roughly 34,000 students each year receive commendations from National Merit Corp., recognition that improves the college application and often leads to bigger helpings of college-based aid.

School selection: When narrowing your school search, investigate the schools’ approach to aid (and, where applicable, to accepting AP units). Some costly private schools are so generous with aid that their sticker price can be misleading, while other schools that appear cheap on the surface become comparatively dear once aid, or lack thereof, is factored in.

Consider, for example, a student weighing whether to apply to Stanford, USC and UCLA. The first two are pricey private colleges that charge upward of $57,000 annually in tuition, fees, and room and board. UCLA is a public school that estimates total cost at $31,000.

Both private colleges, however, provide substantial aid, giving scholarships and grants to roughly 60% of their students. In fact, Stanford’s grants are so generous that the average net cost of the college drops to just over $21,000 versus about $27,000 at USC. In addition, Stanford’s generosity with lower- and middle-income students can make a Stanford education cheaper than going to a public college or university. For instance, for families earning less than $48,000, Stanford’s net cost is $5,946. A family earning $48,000 or less would pay an average of $16,436 at USC. This same family would pay a net price of $9,720 at UCLA.

Where can you find these numbers? The data are gathered and published by the National Center for Education Statistics’ College Navigator site. Use the search bar in the upper left rail to look up your targeted schools. Then compare the sections under the headings “tuition & fees,” “financial aid” and “net cost.”

Manage family assets: When you have a few years to plan, there are three things to keep in mind.

• Financial aid formulas figure that all the assets in a student’s name will be used for college over a four-year period, while parents will be able to use only a small portion of their assets for each child’s college bills. Thus, the fewer assets in the student’s name before applying for aid, the better. Assets cannot be legally transferred from one person’s account to another simply for the purpose of getting better aid. But if you need to spend money on your student for something like a computer or car, it’s smarter to have the student spend his or her assets. That leaves you with the same amount for college, but in better shape for aid.

• Retirement assets are not counted at all in the federal aid formula. But retirement contributions are added back into income for the financial aid base year — generally the student’s junior year in high school. Contribute as much as you can to retirement accounts while your child is younger. That gives you a savings cushion, just in case you can’t afford to contribute later.

• Home equity is not counted in the federal financial aid formula, but may be counted in the “profile” formula that’s used by some private schools. If your child is likely to attend a public college or university, paying down your mortgage can give you the ability to refinance before college to lower your mortgage payments. That gives you better cash flow when you are paying for college and doesn’t hurt you when applying for aid.

At least one year before college application

Check the EFC: The College Board in New York processes aid applications and gives parents a good idea of what to expect through a Web-based calculator of the family’s Expected Family Contribution — EFC for short. The benefit of this calculator is that it tells a family roughly how much it will be expected to contribute, no matter what school is chosen. Thus, you can get a quick snapshot of how easy or difficult college may be to afford and whether you’ll need a backup plan.

The federal government, however, now requires all colleges to have a net price calculator on their websites as well. If your child has a target school, you may be able to get a more accurate estimate of the school’s net cost using that.

Consider Plan B: If the net cost of college is out of reach, students have multiple options. They can attend relatively inexpensive community colleges to get undergraduate requirements out of the way before going to costlier four-year universities; they can search for private scholarships and awards through a free service such as; or they can choose a college based on which institution is willing to give them the most aid. Generally, a student is more likely to get a generous package at a school where he or she is among the top students based on grades and SAT scores, Chany said. In other words, if aid is pivotal, apply to “reach” schools but also apply to plenty of institutions that consider you a highly desirable student who is likely to score in the top of the class. Those schools are the ones most likely to provide extra scholarships and grants.

One year before college

Study aid rules: Filling out financial aid forms can be tricky, and it’s not uncommon for parents to make careless errors — like reporting exempt assets or noting the same assets twice on the form. Either mistake can cost you dearly, but no one will tap you on the shoulder to tell you that you’ve done it wrong. Go to the library or bookstore and read through one or more of the copious volumes on how to fill out the forms. Consider attending financial aid seminars. Also consider pulling up the current-year form and directions. Studying the directions in advance can help you in January when you’re completing the new year’s form because many of the tricky elements are the same. What’s tricky? Most people assume that when you’re asked for your “net worth” that would include all assets. In this case, it excludes what are likely to be your biggest assets — home equity and retirement plans. That’s in the directions, so make sure you study them. Also, cash held in checking and savings accounts is listed separately on the form. If you add it into “net worth,” that cash is likely to be double counted.

Financial aid forms for the 2013-14 year will not be available until January 2013, but reading through the directions for the 2012-13 form can alert you to areas where you might otherwise err.

Collect tax records: Fill out financial aid forms before the “priority aid” deadlines at all of the colleges on your student’s target list. These aid deadlines can be as early as February. Both the FAFSA and Profile aid forms ask for tax numbers from the previous year (for example, 2012 for 2013 aid applications), even though you may not need to fill out your tax return until later in the year. You can estimate your tax numbers, but the school will verify these figures against your completed tax return before solidifying the aid award. The best strategy is to collect tax records and file early.

Investigate: Once you’ve been presented with a financial aid package, make sure you understand the terms. Aid award letters are not consistent and are sometimes confusing. Moreover, some scholarships are one-time only; others are guaranteed for all four years, assuming the student meets basic grade requirements. If these scholarships are pivotal in your being able to afford the chosen school, make sure you have the promise of consistency in writing before your child makes a college choice.

Already in college

Appeal: If you’re in college but find that you simply can’t afford school because your economic circumstances have changed, ask the financial aid office how you can appeal your award. In many instances, schools have an additional stash of aid that can be tapped by needy students — particularly by continuing students — who are suddenly so strapped for cash that they may not be able to continue their studies without it.

Keep applying for scholarships: Because there is money available for continuing college students, now is not the time to give up on scholarship applications. Check out the alumni association at your school as well as interest groups. Some don’t specify that you need to be a high school student to apply. Every little bit helps.