Financial Aid: The Definitive Guide for Parents

An expert shares seasoned insight to help families navigate the process — and cut costs

For most parents, financial aid is like a secret code filled with foreign acronyms such as FWS, BBAY, and SAR. Many approach the process completely unprepared; they believe it is an unwinnable battle.

Parents typically resign themselves to the fact that they will have to cover the second-largest expense in their lives completely on their own. Those who have been through the process like to warn others about the “broken” system.

“Playing hardball rarely gets you very far. There are some things the financial aid office can do to help if the funds provided are not enough.”

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But in our transparent virtual world, is financial aid that difficult to decrypt?

To get some insight on the process, LifeZette spoke with Bart Astor, author of the recent book, “Graduate from College Debt-Free.”

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Question: Many parents believe it does not make sense to save for college because it will only hurt their child’s chances of getting financial aid. What is your take?
Answer: The opposite is true. It makes total sense to save for your child’s college expenses for several reasons. One, the formula for determining eligibility for need-based aid assesses only a maximum of 5.6 percent of parental assets. Two, rarely do students receive their full need, so the parental contribution from assets can help meet that gap. Three, having sufficient funds will mean you and your child may not have to borrow for his or her education, or not have to borrow as much. And four, by having more saved, you’re enabling your child to choose the right college without cost being the determining factor.

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Isn’t that the kind of opportunity we want to provide for our children? Keep in mind, too, that there are appropriate vehicles for saving that offer tax benefits. But overall, students and families are better off when they’ve saved.

Q: Let’s talk about the different components of financial aid, as there are several.
A: There are three ways you can get money: It can be a gift, you can earn it, or you can borrow it. There are financial programs from various sources in each of these categories. And qualifying for these programs can either be based on need, on merit, a combination of need and merit, or with no academic or income restrictions. The federal and state governments and institutions themselves provide both need-based and non-need-based aid in all three categories.

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Q: How can parents reduce their reportable assets and increase aid eligibility?
A: Although the percentage of assets used to determine eligibility for financial aid is limited — the maximum is 5.6 percent of parents’ assets — there are a few things families can do to maximize eligibility. First, be sure to have as few assets as possible in the student’s name. Those assets are assessed at much higher rates than parental assets.

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Also, retirement account assets are not included in the formula, so parents should be sure to fully fund their retirement accounts rather than hold money out. Home equity is not counted in the federal methodology, but home equity is counted in the institutional methodology that many colleges use to award their own aid. Other assets not included are small business equity, family farm equity, life insurance cash value, and personal possessions such as cars, computer equipment, and artwork.

Q: How can students prove they’re financially autonomous and not be evaluated based on their parents’ income?
A: Unless a student is one of these — 24 years old, married, a parent, or a veteran — he or she is considered dependent on his/her parents for financial aid eligibility. There are exceptions in cases where there is documentation of a negative home situation. The reason for this is that paying for college is primarily the responsibility of the student and the student’s family — not taxpayers. Taxpayers help out where a student’s family doesn’t have the resources to pay for college.

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But taxpayers should not be the ones bearing the responsibility just because parents don’t want to pay. Taxpayers already subsidize the cost of public colleges. Refusing to pay for your child’s education does not relieve the family of the responsibility.

Q: Are home-schooled students eligible for financial aid? If so, are there any restrictions?
A: For the most part, being home-schooled has nothing to do with eligibility for financial aid. Home-schooling mostly affects admission decisions. However, many colleges award some aid based on grades and other merit criteria. Without grades, colleges will have a more difficult time determining whether the home-schooled student is more or less worthy than other admitted students. Typically, colleges will rely on standardized test scores and personal and professional recommendations.

Q: What are the most common mistakes students and parents make on financial aid applications?
A: The biggest mistake families make is not applying! Many people assume they will not be eligible, so they don’t bother to apply. That’s so often wrong, and families should not pre-eliminate themselves. Remember, there are programs not based on need, and students need to fill out the standard financial aid application for those programs, too. The second mistake is thinking that the process is too complex and the application too difficult. That’s just plain wrong.

“It’s common for families to undergo big changes: loss of job, medical expenses, a second child in college. Colleges want to work directly with students who undergo financial difficulties.”

For most students, the application takes a half-hour to an hour to complete. And the online application, which most students use, is a smart app, so the student answers only those questions relevant to him or her. The more complex the family, the more questions. The third mistake is applying late. Although some programs have no deadline (e.g., Pell Grants), grant aid from the institution itself or through government programs generally does have a deadline. As for the application itself, most students apply online, so most of the mistakes are caught right away through smart logic, before the application is even submitted. Many students don’t have to fill in the income information because there is an IRS match.

Sometimes, however, the IRS can’t match the demographic information provided and that causes delays.

Q: If a student does not apply for financial aid this year, how will that affect his or her eligibility for aid in subsequent years?
A: Students have to apply for aid every year, regardless of whether they applied previously. Because so many students opt out of applying in the first year, often mistakenly assuming it will affect their admission decision, it’s common for second-year students to be applying for the first time. Continuing students may have a different deadline than first-year students. Be sure to check with the financial aid office at the college.

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There are also many families who saved enough for one year but then need help. Financial aid offices will want to know why the continuing student is applying for the first time, but it’s common enough and for many good reasons.

Q: How does a student appeal for more financial aid if the package is insufficient or circumstances change?
A: This really is two questions. The first one deals with when a family’s financial situation changes. That’s an easy one to answer: The student writes or visits the financial aid office and explains the changes. It’s quite common, actually, for families to undergo big changes: loss of job, unexpected medical expenses, a second child in college, etc. Colleges want to work directly with students who undergo financial difficulties. After all, once the student is enrolled, they don’t want to lose him or her. They made a big commitment, and it’s not very easy to replace a student in subsequent years.

The other question is about working with the financial aid office when the package is insufficient. There are some colleges that do negotiate, but most frown upon it. And there are appropriate ways to negotiate. Some colleges do say they’ll match another college’s offer. But that trend is diminishing as enrollments have gone up. Here, too, the best approach is to work directly with the financial aid office and explain, respectfully, that the offer is just not enough. Playing hardball rarely gets you very far. And there are some things that the financial aid office can do to help if the funds provided are not enough, including offering more loans or Federal Work Study.

Q: What are the different types of loans? What is the difference between a subsidized loan and an unsubsidized loan?
A: If students have demonstrated need through the financial aid application (FAFSA), they are eligible for a federally subsidized loan, which means that interest does not accrue until the student leaves school. That means that the balance on a $4,000 loan in the freshman year is still $4,000 in the senior year.

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There are loan limits on these subsidized loans, and the college awards the loan — not the government or any lender. If students do not qualify for need-based loans, they are still eligible for unsubsidized loans on which interest does accrue right away. So that $4,000 loan balance will grow to about $4,600 by the end of senior year. There are also some state governments that lend to students. And there are many private lenders that offer student loans. Overall, the terms of federal loans are the most favorable for borrowers because of low interest rates, the ability to defer payments, a multitude of repayment plans, and even some loan forgiveness plans. Private lenders cannot offer these benefits.

Q: What are some of the best sites for students to locate scholarships?
A: In general, scholarship search companies use the same database. There are some differences, and some search engines are better than others. No one should ever pay for a scholarship search service, since there are several that are free. Here are a few of the free scholarship search websites: FastWeb, BigFuture, Scholarships, and StudentScholarshipSearch. Personally, I’m keen on the College Board site because of the other services that the College Board site provides.

“It’s a mistake to think the process is too complex and the financial aid application too difficult. That’s just plain wrong.”

Q: What other general college advice — life wisdom here, in essence — would you share with students and parents?
A: Going to college is not just about learning a skill or qualifying for a job. It’s about getting an education and learning critical thinking. That ability, in turn, opens up a world of opportunity for people. We all know the statistics: College graduates do earn, on average, considerably more in their lifetimes than non-college grads. But more importantly, the quality of their lives and their participation in the world community is improved.

College grads are less likely to go on unemployment or rely on income-supported government programs. They vote more, volunteer more, and, most important to me, the children of college-educated parents are more likely to go to college themselves, thus extending the opportunities to future generations.

That said, and being cognizant of the limited resources available to many people, I have no problem with families extending themselves somewhat with loans. The key is to find the appropriate amount that takes into account the student’s ability to repay and doesn’t jeopardize the parents’ retirement. There are no loans for retirement, so parents should not raid those accounts to help their children with college expenses. And students should be aware of how their student loans will affect future choices, whether that’s about the kind of job they choose or whether they will be able to afford a car of a house later on.

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But since student debt is such a hot topic, the choice of a loan repayment plan can greatly improve the quality of life of any student loan borrower. There are income-based repayment plans that make it possible for most borrowers to pay off their loans without compromising their quality of life too much. But the key, in my mind, is for borrowers to think carefully before they borrow and to know their options.

Daniel Riseman, founder of Riseman Educational Consulting in Irvington, New York, has been counseling students and working with families for 16 years.

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