Student financial aid: Myth and reality

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There are many myths about student financial aid. They relate to the types of aid available and who is eligible for aid. The United States Department of Education and the College Board have identified a number of myths about student financial aid. These myths are misleading to students, parents, and school counselors. If you are starting to look into the cost of sending your child to college, being able to separate myth from reality can help you create a successful financial strategy.

Myth one: College is just too expensive for our family

This is almost never true. Even with respect to "expensive" colleges, once student financial aid is taken into account, the net cost of attending a private college could be substantially less than the published tuition and fees price. Both private and public colleges are awarding significant amounts of financial aid to make their colleges affordable. The key is that you have to apply for the aid. No family should rule out a college because of its sticker price. Financial aid generally takes into account family circumstances.

Myth two: There is less aid available than there used to be

This is not true. Student aid has increased significantly at private colleges. Much of this aid is in the form of scholarships and grants, which is free money. Students do not repay grants or scholarships. According to the College Board, institutional aid constitutes about half of all grant aid received by students. In addition to grants, millions of taxpayers have benefited from federal education tax credits or tuition and fees deductions. Also, there are numerous federal, institutional, and private student loans available to students with very low interest rates.
The message resulting from the discussion of the first two myths is that, in reality, there is money available to students. All college options should be investigated when selecting a college. Don't let the published or sticker price scare you. Don't allow such myths to discourage your child from applying to the college of his or her choice.

Myth three: You have to be a minority to get aid

This statement is simply not true. There is no criteria within federal or institutional methodology that factors in minority background. Both federal and institutional need analysis systems are race neutral. The Free Application for Federal Student Aid (FAFSA) does not even ask applicants to submit race information. Colleges will use the expected family contribution and simply subtract it from the cost of attendance to determine financial need. Also, colleges are committed to access and affordability regardless of ethnic background. Of course, some specific scholarships consider racial or ethnic background, but that does not mean that other forms of aid are not available to those who do not qualify for such scholarships.

Myth four: My income is too high for my child to qualify for aid

Merit scholarships are awarded based on specific criteria — for example, high school average, SAT scores, rank in class (if listed), and service. Family income is generally not a factor. The largest growth in institutional aid budgets is merit money. Colleges are competing locally, regionally, and nationally for talented, gifted students. Many colleges are offering merit money in order to improve their rankings in college guides.
Also, both the federal and institutional need analysis formulas take into consideration family income, family size, number of students in college, federal and state taxes paid, and other factors. Finally, the key factor in determining financial need is the college's cost of attendance. A student may demonstrate financial need at some colleges and not show financial need at other colleges.
Do not believe that your child is ineligible for aid due to family income. Apply first, and then allow the financial aid offices at each college to provide guidance on how to pay the college costs at their college.

Myth five: The financial aid form is too hard to fill out

Over the years, the Department of Education, with the assistance of student financial aid administrators nationally, has simplified the FAFSA. Applicants who complete the FAFSA online will discover that it is easier to do. Each section has specific directions explaining how to complete the individual questions. Once you have completed the FAFSA online and submitted it, you will have an opportunity to correct any mistakes in your original data.
Your child can also obtain assistance on how to complete the FAFSA and other financial aid applications from local colleges, high school counselors, and possibly community action organizations. Many colleges and high schools offer free workshops on how to complete the FAFSA. These workshops are usually held late fall or January of the student's senior year. Many sophomore and junior parents attend these workshops to get a heads up on the form and actual processing timetable. Some state student financial aid organizations offer a toll-free hotline in January to assist parents/students in completing the FAFSA and in answering general financial aid questions.

Myth six: We saved for college, so my child won't qualify

Saving for college will provide the applicant with more opportunities, most significantly:
  • Both student and parental savings will reduce student's indebtness. Remember that the largest component of student aid is low-interest loans
  • Savings will provide money to assist the family in paying both direct and indirect college costs
  • Remember: Parental and student assets are not counted dollar for dollar in either the federal or institutional need analysis formula
Generally, up to 5.6% of the assets are considered available to pay for college expenses if in the parents' name and 35% if in the student's name. Consequently, planning ahead for college costs through 529 Plans and Coverdell ESA accounts is a prudent investment strategy when saving for future college expenses. Finally, the EFC is calculated primarily on the basis of income, not family assets.
Do not be afraid to save. Only a portion of both student and parental savings are assessed in the federal need analysis formula. Families should begin a college savings plan for their children as early as possible. In the long run, it will make it easier and less expensive to pay the college bills and reduce some anxieties associated with selecting a college.

Myth seven: Only students with good grades get financial aid

Yes, many colleges award merit scholarships based on high school average, SAT score, rank in class (if reported), but they also consider service to the community, participation in the arts, athletics, and academic major as other criteria. More importantly, eligibility for student aid from the federal government and grants from individual colleges are based on the student's financial need, not academic record.

Myth eight: If we apply for a loan, then we have to take it

Loans are usually a significant part of aid packages, but students are not obligated to take them. In some cases, families will decide that they do not need to borrow the recommended loan amount or they will decide to borrow a smaller amount. Federal Stafford and Perkins loans are very attractive, low interest loans. Families should compare federal loans with other loan programs and select the one with the best provisions.

Myth nine: Working will hurt my child's academic success

Higher education research over the years has continually reported that students who work part-time during the academic year tend to do well academically. The key is not to work too many hours. Students will need to develop a time management plan that includes part-time work, on-campus involvement, and obviously time for academics. Also, part-time work on and off campus will allow the student to earn money for college-related costs and possibly provide hands-on experience for a future career.

Myth ten: My child should live at home to cut costs

It is wise to study every avenue for reducing college costs, and living at home may be a significant one. Be sure to consider commuting and parking costs when you do this calculation. Living on campus, however, may provide other benefits that are worth the cost.

Myth eleven: Private schools are out of reach

In many cases, attending a private college or university may be more affordable than a public institution. Private colleges and universities have more institutional aid to award to students. Also, private colleges will award money to students based on academic merit and financial need in order to attract a diverse student body. This is not to imply that public colleges are not aggressive in their recruiting and student packaging practices; they are. Since private colleges and universities have higher tuition costs, applicants may demonstrate more eligibility for student financial aid than at a public college or university. Nationally, it is estimated that more than 70% of students attending private colleges and universities will demonstrate financial need and will receive aid packages including free money, loans, and on-campus part-time work opportunities.

Myth twelve: Millions of dollars in scholarships go unused every year

This is simply not true. This myth is a banner headline used by some scholarship search companies in order to attract attention for their services. If you were to contact local scholarship foundations and civic organizations, you would discover that these organizations generally award the scholarships that they have available.

Myth thirteen: We will have to sell our home

The federal government does not consider the value of your primary residence in the need analysis formula. Some colleges, however, may require you to report home equity on their institutional form or the CSS/Profile if the college uses that form. These colleges request home equity information to calculate an expected family contribution for institutional grant aid, not federal student aid. Note: Only a few hundred colleges request this additional information. Neither the federal government nor colleges will expect a family to sell their home in order to pay college expenses.

Excerpted from Financial Aid for the Utterly Confused by Anthony J. Bellia. Copyright © 2007 by The McGraw-Hill Companies.

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