Paying for College (When you haven’t saved enough)
By STEVE COHEN
Paying for College:
Go Broke, Go into Debt, Go Crazy
Choose Any Two
Two confessions: first, I didn’t save enough for my kids’ college education. Second, $140,000 is a lot of money to
me. Not surprisingly, adding another $210,000 to the pot more than doubles the pain. But that is what I’m paying —
$350,000 – to send two kids to college. One is at a very good state university – but paying out-of-state tuition; and other
is at a top private university where he is getting $10,000 a year in scholarships. So, all-in, I’m doing better than I might
have: the real out-of-pocket expense for many private colleges is approaching $60,000 per year. The bottom line is that college is expensive; that’s no surprise. It is often referred to as the second largest expenditure a family will ever make – after their home. Not surprisingly, college presidents prefer to call that $200,000-plus expenditure-per-kid an investment, not an expense. (We won’t get into the anticipated ―return‖ on that investment; it might interfere with my kid’s fraternity duties.) Nevertheless, hope springs eternal. And if you’re like me, and find it
―challenging‖ to come up with $90,000 a year to send the kids off to Old Swami, I hope the following primer on paying for college is useful.
Financial Aid is Available – Unless you’re able and ready to write that Boxster-sized check each and every year, you’re
going to deal with the ―financial aid‖ process every year. It is not a one-time experience. Think of it as a root canal without anesthesia – every year your kid is in college. The financial aid office is different from the admissions office which is different from the cashier’s office (where you actually send the check.) It absolutely helps to befriend a live
person in the financial aid office early in the process. There are two reasons: first, financial aid officers do have a bit of
discretion. Second, having a human being help you through the gauntlet makes it less stressful. The Relationship Between Admissions and Financial Aid – You may still be in the deciding-where-to-apply/how-does-Sam-get-in mode. Asking for financial aid sometimes affects admissions decisions. When there is no link — and the
admission decision is completely separate from the family’s ability to pay for it — the process is known as need-blind
admissions. Look for that phrase on the college’s admissions web page. Every school is candid about its process. If a school is not need-blind – wealthier schools typically are – asking for financial aid can have a small negative impact on a kid’s chances of admission.
“Expected Family Contribution” – This is the Alice-in-Wonderland dimension of the financial aid world. The government has contrived a formula – that should be enough of a tip-off – of how much a family should be able to
contribute to a child’s college education. Forgive me, but I think the folks who came up with the formula must have been heavily indulging in some prohibited substances. To my parental eye — and wallet — it bears no semblance to
reality. The formula takes into consideration income, assets – distinguishing real estate from other assets – and family
circumstances: number of kids, their ages, where you live, etc.
Let’s say you earn $150,000 and have $150,000 in non-real estate assets. Your expected family contribution will be $19,500 per year/child for private college; and $25,400 per year/per child for public universities. (I don’t pretend to
understand why there is a difference.)
The bottom line is that you’re going to be expected to come up with that much for Sam’s education – every year.
Colleges “Meet the Need”
Colleges try very hard to help families pay for school. Almost all scholarships and loan programs run through the college’s financial aid office. So if there is a difference between the college’s annual costs – say $50,000 – and your
expected family contribution – perhaps $30,000 – the school will try to forge a financial aid package worth $20,000. But you have to apply for it!
Occasionally you will hear – or read on a college’s website – that the school tries to meet all demonstrated need. Or
you’ll see a statistic about the percentage of need met. That means the school’s resources are inadequate to finance that
full $20,000. There is a ―gap.‖ So a school may be need blind in its admissions, but still ―gapping‖ in its award. Do not
be afraid to ask a school if they ―meet fully demonstrated need.‖ Because if they don’t, you’ve got to come up with the
The Financial Aid “Package”
When a college admits young Sam, it will also tell you how much financial aid they are awarding Sam – for that
year. The financial aid package is typically comprised of three things: scholarships (or grants;) loans; and work study. Work-study is typically less than 10% of the overall tuition charge, and involves Sam taking a campus job – in the
dining room, the library, etc.
The most desirable form of financial aid, not surprisingly, is the scholarship or grant. Some colleges – such as the Ivy
League schools – base scholarships solely on financial need. Other private and state schools use scholarships – often
called merit scholarships – to attract academically-talented kids to their campus (over a competitor.) Scholarships are outright grants and do not have to be repaid. But most schools award at least some scholarship aid to all students eligible for financial aid. It is essentially a discount off the college’s list price.
Depending upon the wealth of the school, the bulk of the financial aid package may be in the form of loans. (The wealthier the school – think Ivy League colleges — the larger the grant portion. In fact, the Ivy League schools have
committed themselves – for now – to helping kids graduate with minimal debt.) The loans come in a variety of forms and sources, with many emanating from the Federal government. Stafford, Perkins, subsidized, unsubsidized. The terms vary depending on family income; but the school’s financial aid office is pretty good at making sure Sam gets everything she is
eligible for. But these are loans that Sam will be required to repay after graduation.
Remember I used the phrase root canal without anesthesia? It is actually worse than that; root canal is usually performed by competent dentists. The financial aid ―expected family contribution‖ formula is the province of a government committee. There are four basic steps:
1. Tell each college you want to apply for financial aid. Typically the admissions application has a box to check off. 2. Submit whatever college-specific forms the school demands.
3. Complete the on government’s online FAFSA form.
4. Complete the College Board’s CSS Profile forms. (Most private colleges require this special application to be
eligible for financial aid from that school.) One submission to the College Board covers multiple colleges; but a separate fee has to be paid for each.
That doesn’t seem so bad, does it? Just be prepared for a dozen little detours along the way. For example, your kid has to complete her own FAFSA; you will have to get multiple passwords and PIN numbers; and you’ll be navigating through several look-alike, non-communicating government websites. And make sure you have every tax document you submitted last year when you complete the forms.
Meeting the Expected Family Contribution: Parent Loans
The BIG, not-so-secret source of meeting the expected family contribution are Parent Plus loans. These are government-backed, moderate-interest rate loans that are made to the parents while Sam is in college. They don’t have to be repaid
while she is in college. And for families who don’t have the liquid assets or who can’t/don’t want to take on a home equity loan to meet Sam’s tuition and living expenses, Parent Plus loans are a life-saver. There is a credit check involved,
but the criteria are pretty lenient.
Yes there is a burgeoning business of folks who are able to help you fill out the forms – and provide ―guidance‖ about
how to shift assets before applying. I’m a fan of the former and leery of the latter. If you have assets, you’re going to pay
something for Sam’s college. (Don’t shift assets to Sam! Kid’s have to ―contribute‖ a much heftier portion of their assets
– about 20% annually – than parents do.) I’ve used private consultants to help me prepare and submit the myriad forms,
and it was well worth the $700.
Can You Negotiate with a College?
Yes and no. Financial aid officers do have a bit of discretion in how they award financial aid. That is why it is important to connect with a real person in the financial aid office as early in the process as possible. Special family circumstances are often taken into consideration. And once those fat envelopes offering admission arrive in April, there is a momentary shift in the balance of power: you can tell one college—where Sam has been admitted — about the financial aid package
offered by another school. And the college might match the better offer.
The Bottom Line
There is money available to go to almost any college. So don’t rule out a place because it is expensive and you’re ―middle class‖ — without the assets or stomach to liquidate them. But you – and your kid – will almost always be taking on a pile
of debt. That’s the Faustian bargain. Just hope Sam doesn’t major in fraternity life.
This article was written with Mike Muska, Dean of College Counseling at Poly Prep in Brooklyn. Mike is the co-author of Getting In: The Zinch Guide to College Admission and Financial Aid in the Digital Age. (To be published in April by Wiley.) He has worked in admissions and athletics at colleges including Brown, Cornell, Auburn, Oberlin, and Northwestern.