Your high school senior's first day of college may be nine months away, but to secure help paying for it, you'll have to start today. Be prepared to unveil all your financial secrets.
By Katy Read
Happy New Year. If you've got a kid who's a senior in high school and planning to start college this fall, you'd better get busy. OK, go ahead and finish your coffee first. But right after that -- or at least as soon as possible within the next few weeks -- it's time to apply for financial aid.
If you want help paying for what may be the second most expensive thing your family will ever buy, after your house, you'll need financial aid. About half of all undergraduates receive some combination of scholarships, grants, work-study earnings and loans from the federal government, states, colleges themselves and other organizations, according to the National Center for Education Statistics. How much your family qualifies for, compared with what portion of the tuition bill you can afford to cover, is a decision to be made in the coming months by school and government officials, to whom you'll have to divulge everything from last year's income to the amount of money in your savings account to any unusual medical costs.
Going to that trouble could save you thousands -- not to mention vastly expand your child's education options. That's because the amount you're expected to pay is the same no matter where the student attends school. If the officials decide, for example, that your family can afford $8,000 a year, then theoretically that's all you'll be required to come up with, whether the student goes to the local community college or to Harvard (though, in practice, it can vary somewhat and, of course, being accepted to Harvard is another matter entirely).
The sooner you do it, the smoother it's likely to go.
The federal aid form -- the most important one -- can't be submitted before Jan. 1, but after that, time is short. Deadlines vary from school to school, but most fall somewhere between early February and early March. Oh, you can always try applying later. But there's only so much money available each year, and people who apply on time get first dibs on it. So don't wait to find out which schools have accepted your child.
"Every year," says Ron Shunk, director of financial aid at Gettysburg College in Pennsylvania, "when we do our spring orientation program, sometime in April, someone in the back of the room will raise their hand and say, 'We've been accepted. Should we apply for financial aid?'" By then, it's often too late.
Most American families qualify for some financial aid.
But many don't bother to apply, figuring they earn too much to qualify. Big mistake, experts say. There's no precise cutoff when it comes to financial aid. "You should apply even if you're convinced that you're not going to be eligible," says Mark Kantrowitz, the Pittsburgh-based publisher of the FinAid, an online guide to financial aid. "There are families that earn $100,000 or more a year that qualify for financial aid, if they have multiple children in school."
Besides, there are a couple of types of low-interest federal loans (Stafford and PLUS) that any family can receive, regardless of need. You should also take advantage of free scholarship searches to check for private sources of funds.
Maybe you're thinking this process shouldn't even involve you. Your child, after all, is really an adult, with a job and his or her own savings account. Unfortunately, the government and the schools don't see it that way. A student is classified as "dependent" - that is, parents' income and assets are considered in determining aid -- unless the student is 24 years old, married, has legal dependents or is a graduate student, an orphan, a ward of the court or a military veteran. Otherwise, the system generally assumes that he'll be getting some help from the 'rents. (If there are unusual circumstances, the student should contact the school's financial-aid office.)
Think twice about hiring someone to do this for you.
Sure, there are financial-aid consultants who will gladly handle the paperwork. But they can't offer much information that you couldn't easily get yourself, with the help of the student's high school guidance office, literature from the college and some useful Web sites or books (see sidebar).
"This is not rocket science," says William Stanford, director of financial aid at Lehigh University in Bethlehem, Pa. "I've seen consulting fees running from a few hundred dollars to many thousands. Families of means can probably go this route, even if it does not net them more financial aid (and it shouldn't). But families of modest means should put those dollars toward paying those college costs."
Besides, this is something you'll have to do every year that your kid is in college (in subsequent years, you'll get a "renewal" form, on which you submit changes from the previous year). And you'll go through it again if you have other kids bound for college. So you might as well get used to it.
Start by gathering the forms.
You can get them at the student's high-school guidance office, the college's financial-aid office or the public library.
No matter where the student is applying, you'll need to complete the Free Application for Federal Student Aid (FAFSA), a form required by the Department of Education in order for you to apply for federal financial aid as well as many state student-aid programs. You can complete it online using the link at left.
Half of all private colleges, including many of the most prestigious, also require the somewhat more detailed CSS/Financial Aid PROFILE, a form administered by the College Board, a nonprofit membership association. It costs $6 to register to file the form. The College Board will charge you $16 per school to send the application out. It can be completed either on paper or online (see link at left). In addition, you'll have to fill out the school's own forms; some of these are quite simple, while others ask for lots of financial information. Photocopy each blank form and use the copy as a rough draft. Make sure the one you send in is the original, though.
Both the FAFSA and the PROFILE have spaces for indicating the schools to which the student is applying; your financial information will automatically be forwarded to those schools and processed by their aid offices if the student is accepted. (Because you pay a nominal fee for each school that receives the PROFILE information, list only the schools on that form that require it.)
Next, get out your financial records.
Photocopy these, too, and keep them together in a safe place. You'll need income-tax returns, W-2 forms and 1099 forms for both the parent and student for last year, along with current bank statements, mortgage information and investment records. You'll also need documents pertaining to nontaxable income and business records, as well as the student's Social Security and driver's license numbers.
You say you haven't done your taxes yet? Not a problem. What you do is estimate, perhaps using MSN Money's Tax Estimator or December's pay stub (you may have to do a rough draft of your 1040 -- submitting "estimates" that turn out to be way off the mark is not advisable). Later, you'll have a chance to revise the numbers to match your actual returns.
Let the college know of any unusual circumstances.
If there's a situation, or one later develops, that could hurt your family's ability to pay for college -- a death or loss of job, unusual medical or education expenses, a fire or natural disaster -- you may get a break on tuition. Submit a letter describing the situation, along with photocopied documentation such as medical records or a layoff notice, directly to the school's financial-aid office (not to the FAFSA or PROFILE processors). Don't bother to plead poverty because you remodeled the kitchen -- they're looking for stories of unusual hardship, not extravagance.
"I was lucky, because I had a heart attack," says Michael Robison of Los Angeles, somewhat paradoxically. Robison was left disabled for all of 1992, the year before his oldest daughter enrolled at Carleton College, a private school in Northfield, Minn. "If it hadn't happened, I don't know what I would have done, because I wouldn't have had the $25,000 that Carleton charges. Carleton was very gracious. I was very fortunate. I got almost everything covered."
Take last-minute steps, if desired, to maximize your aid eligibility for this year.
There's not a lot you can do, because what you can afford to pay is determined mainly by last year's income. (Though there are measures you can take to improve your aid position for subsequent years; see sidebar.)
But there are a couple of small legal -- and ethical -- moves you can still make. Remember that while the forms ask about last year's income, they want to know your current assets (the amount that's in your savings account on the date that you write on the form). Now's the time to pay any big outstanding bills. Also, remember that students' savings are assessed at a higher rate than their parents. So if there are big-ticket items the student needs for school (besides food, clothing or shelter, which are considered parental obligations), such as a computer or dorm fridge, buy them before submitting the form, using her savings, not yours. Buying a $2,000 computer could make a $700 difference in the family's expected contribution toward tuition, says Anna Leider, co-author of the annual guide, "Don't Miss Out: The Ambitious Student's Guide to Financial Aid" (Octameron Associates, $10).
But be judicious, she warns. "You don't want people throwing their money away, just so they can save money on college."
Complete the forms thoroughly and accurately.
A small mistake on a financial-aid form could be more financially devastating than an error on an income tax return. For example, if you forget to sign your 1040, the IRS just sends it back for you to correct. Do that on your financial-aid forms and you'll also get a chance to fix and return it -- but in the meantime, your form won't get processed and the clock will be ticking. If you take too long, you could miss the first round of aid distribution, potentially costing you hundreds or thousands of dollars.
The first time Robison filled out a FAFSA, he forgot to get signatures of both parents (which, at the time, the form required). "Guess what? They returned the thing without processing it. Lost four to six weeks," he says. "You're so overwhelmed. It's classic Murphy's Law."
Robison's family didn't lose out on aid. Nevertheless, it pays to read the instructions carefully. If the answer to a question is "zero" or it's inapplicable to you, enter a zero -- don't just mark it with a dash or leave it blank. Use legal names as they appear on Social Security cards (Robert, not Bob). Keep in mind that the information you submit could be selected for "verification" -- financial aidspeak for auditing. If so, you'll have to present copies of your documents. All schools are required to verify about one-third of their applicants, and many schools routinely verify everybody.
When you've completed the form, keep a photocopy for your records and send in the original by the deadline. If you're using the Postal Service, send it by certified mail to prove you sent it on time. Be sure to check our list of classic financial-aid bloopers , below.
Watch your mailbox.
Within four weeks of completing the FAFSA (sooner, if you do it on the Web), government processors will send you a Student Aid Report (SAR) in the mail (not by e-mail). Read it immediately, correct any errors, adjust estimates from your income tax forms, make a photocopy and mail the original back promptly. Sorry, you can't do this online (yet).
The SAR contains some important preliminary information. Find the initials EFC, for Expected Family Contribution, and check the number next to that. That's the amount of money, according to the federal government's calculations, your family will be expected to fork over for a year of college.
Be prepared to pick yourself up off the floor. Surveys show EFC sticker shock is almost universal, Kantrowitz warns. "The figure they come up with is going to be a painful one," he says. "They're going to come up with an EFC figure that is going to be higher than the family feels they can afford, in almost every case."
If you filled out the PROFILE, you'll also get a form back indicating your EFC, which may vary somewhat from the FAFSA EFC, because they're calculated by different methods. (An example: the PROFILE processors take your home equity into account; the FAFSA processors don't).
Wait to hear from the schools.
Your information will be sent to the colleges you indicated on the forms. Officials there will develop an aid package -- a combination of scholarships, grants, work-study and loans -- by considering the EFC, the school's resources, the student's level of need and, in some cases, the student's credentials. They'll send a description of the aid package to the student, often with the acceptance letter. When comparing financial-aid packages at multiple colleges, be sure to consider not only the total amounts, but also their composition. Scholarships and grants, being free money, are generally preferred to work study and loans.
"If a student applies to three schools of exactly the same cost, he may not get the exact same aid award," Shunk says. "It's decided on a case-by-case basis, but there really is a kind of formula. Our formula is biased toward using those dollars the institution has to attract the best student body possible. The neediest get the best deal with federal funds, and the most qualified get the best deal with institutional grants."
Don't call it negotiating, but . . .
Under some circumstances, it's worth politely asking a school's financial-aid officials for a better package. While many are uncomfortable with the word "negotiate," occasionally they do agree to adjust their offer, particularly for a desirable student. "Rarely do schools get into haggling," Kantrowitz says. "It's not like a car dealership, where you can go to a school and say, 'I'll go to your school if you reduce your cost by $3,000.' But if you have an offer from a comparable school that's somewhat better, you can go to the financial-aid office and point it out. The school may or may not match it."
Don't try to get an even better deal by enticing schools to bid against each other, he warns. "Schools do not get into bidding wars. A school is only going to do that sweetening of the pot once. If they do this, you're then going to go to their institution."
Financial aid bloopers
When it comes to applying for financial aid, there are two kinds of mistakes: little dumb ones (filling in the wrong Social Security number or date of birth) and big dumb ones (missing the deadlines or not applying at all). Here are some of the most common. And remember, we're talking about mistakes you might make now, not mistakes you may have made in the past.