Surprising facts about college financial aid

June 27, 2010

As the cost of college continues to skyrocket, you should take heart – if you plan properly, you won’t have to pay “sticker price” for your son or daughter’s college of choice. Here are some facts about college financial aid that could help you slash college costs:

• Some Colleges Have More Money to Give Than Others. Most schools use the same financial aid formula to determine your financial need. However, they differ vastly in how they apply that formula. In other words, different colleges meet different percentages of your financial need. The older, prestigious private colleges – Ivy League and similar – tend to have large endowments. This endowment money fuels the financial aid awards that these colleges and universities dole out.

• Private, High Sticker Price Colleges Can Actually Cost You Less Under Some Circumstances. Even though one year of college at a state university can run around $20,000-$30,000 (tuition, fees, room and board, etc.) and a private college can top out over $50,000 per year, the more expensive college can cost you less! Why? Because state universities very rarely award significant financial aid packages, so many families float the entire cost. On the other hand, private colleges and universities with large endowments regularly meet 90%, 95% and even 100% of financial need. So don’t rule out expensive private institutions until you examine their financial aid awards!

• Even if You Earn Six Figures, You Can Still Receive Substantial Financial Aid. This may be the most surprising fact of all – colleges and universities have courted the “forgotten middle class” in the last few years, regularly giving five figure awards to parents earning six figure incomes. Just because you think you make too much does not mean that you should blow off filling out the FAFSA and other financial aid awards – you may be pleasantly surprised!

• Although Two Families Can Have the Same Amount of Money Saved, One Will Receive Far More Financial Aid Because of How/Where They Saved it. It’s a little known fact, but some assets count against you in the financial aid formulas more than others, and some don’t count against you at all! In general, money saved in your child’s name will penalize you more in the financial aid formulas than money held in your own name! (This is because the Department of Education reasons that you’re going to tap money in your child’s name for her education – this makes sense, but it also penalizes you for being thrifty…I’ll stop her before I feel a political rant coming on!) So even though your stock-broker or CPA recommended you establish an UTMA account (Uniform Transfer to Minors Account) for your child, this could penalize you to the tune of 20-25% in the financial aid formulas. You could be better off holding this money in your own name, or in an asset class that’s entirely exempt, such as retirement accounts, insurance, some annuities and some business assets.

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