Find the Money: The Real Story on How Aid Packages Are Calculated

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Find the Money: The Real Story on How Aid Packages Are Calculated 

You've worked up a list of colleges that look promising, from academics to size to location to vibes. Logically, the next step would be to use price to help narrow the field-but how? Going by the figures for total costs shown in catalogs and on Web sites-last year they averaged $24,946 for private colleges and $11,338 for public universities-isn't the answer. Over the past few years, sticker prices have had less and less to do with what families pay out of pocket, as colleges have doled out ever more generous aid awards. Nor are schools evenhanded in calculating the final bill. Colleges in the same price bracket can come up with cost figures for the same family that differ by thousands of dollars.

That's what happens when colleges have only so many financial aid dollars to parcel out (although some colleges have lots more than others), when the "standards" that define a family's need for aid are anything but, when colleges try to design the makeup of their freshman classes to order, and when schools negotiate on price-or seem to-in order to get the students they want. In short, financial aid has become a complicated mess. It's gotten so bad, in fact, that in July the presidents of 28 selective schools across the country endorsed a common set of principles asserting in part that families "with similar financial profiles should contribute similar amounts" toward the cost of college. "There is evidence that students and their parents are confused" by what different colleges inform them they will have to pay, said Cornell University President Hunter Rawlings, the group's chairman, in something of an understatement.

He could have been thinking about Christine Bunting. After her acceptance letters and aid offers arrived last spring, Bunting, 17, of Churchville, Md., faced first-year bills ranging from $8,000 to $17,000 from her top three colleges, all of them with sticker prices roughly clustered between $30,000 and $35,000. The steepest bill was from Kenyon College in Gambier, Ohio, which offered Bunting $17,000 in aid against its $34,000 sticker price. Kenyon was her No. 1 choice. But this fall she is a freshman at Goucher College in Baltimore, which gave her a full-tuition scholarship worth $22,000 of the $30,000 total cost. "My parents said if I went there they would be financially much more able to pay for me to go to a study-abroad program," says Bunting.

Bidding war

How can colleges come up with such wildly different cost figures? The short answer is that while they can fool around only to a limited degree with Uncle Sam's federal grants, loans, and work-study, they can do pretty much what they want with their own funds until the well runs dry. Schools competing for highly qualified students who aren't sufficiently "needy" to get large awards of need-based aid, for example, are increasingly eager to hand out generous "merit" awards, for academic achievement, say, or for athletic, musical, and other particular talents. But even schools that give money just to families that need it have lots of leeway in how they define need. The president of one prestigious liberal arts college likens the current climate to a bidding war between colleges determined to get the freshmen they want.

The confusion starts with the formulas used in a need analysis to determine how much of the total price a family can afford to pay-the expected family contribution, or EFC. All colleges doling out federal aid use the same formula-the so-called federal methodology-to arrive at their numbers, so students applying to public institutions probably will be expected to contribute about the same amount everywhere. These schools rely exclusively on the bottom line that results when Uncle Sam feeds information about family finances provided on the Free Application for Federal Student Aid into the federal formula. (Get insight into what public colleges will ask you to pay with the online calculator at www.finaid.com.)

The problem, says Ellen Frishberg, director of student financial services at Johns Hopkins University, is that "the federal methodology isn't very smart." The FAFSA's eight pages and 103 blanks yield only the bare bones of a family's financial status-hardly more than household size, student's and parents' adjusted gross incomes, net worth of investments, and savings. "There's nothing to indicate whether last year was an anomaly, whether there was a death in the family or something else," says Jack Joyce, director of guidance services for the College Board. Only if presented with special circumstances defined by federal law, such as unusual medical expenses, a divorce, or a parent's job loss, can an aid administrator exercise "professional judgment" to change the federally determined family contribution.

Applicants to several hundred of the most selective private colleges face an additional and much more detailed aid form, the College Board's CSS/Profile application, which feeds into a far more sensitive "institutional methodology." This formula makes more adjustments to income and assets than the federal methodology does, counting certain tax-free income such as child support and untaxed Social Security payments, for example, and including home equity as an asset.

Customized calculations

The Profile application is as complicated as a 1040 return with a few extra schedules. You can't find it on the Web or pick one up in a public library, because each college has its own customized version. Many colleges, for example, don't let parents deduct the cost of tuition for private elementary or secondary school from their resources, reasoning that private schooling is a matter of personal choice. Princeton University gives parents a deduction of $7,000 to $10,000. "We think it's a reasonable expense," says Don Betterton, director of undergraduate financial aid, "because our population is drawn from a lot of families who feel their children need the kind of preparation that a private school can give." One institution may expect contributions from both parents whether they're still married or not; another won't. While the formula does not count the value of tax-deferred retirement assets when figuring net worth, some institutions, such as Boston College, reserve the right to include these assets case by case.

In competing for students, all of the information can be used however a college wants. Some colleges even zigzag between the federal and institutional methodologies, driving "need" up or down by using whichever one supports the school's assessment of a student's appeal. Home equity is a favorite tool. For a desirable student, information about family assets could come from the FAFSA, which ignores home equity. For a student who is less highly prized, assets could be taken from the Profile form, which counts it. "How can we look at two families with similar financial situations," says Michael McPherson, president of Macalester College in St. Paul, Minn., "and tell one they have a lot of need and tell the other they don't because we want one kid more than another? It's Alice in Wonderland."

But it's more than just bizarre. By undermining confidence in the rationality and fairness of aid distribution, says McPherson, this unevenness "feeds the sense, 'Why should I be honest? Why should I play by the rules? Why shouldn't I see it as a game?'" This concern, shared by many college officials, is what brought the 28 college presidents together. The "568 Group," as the coalition was called (for a section of federal education law that permits colleges to discuss principles of aid without being charged with price fixing), released specific recommendations that could go far in smoothing out some of the differences families see in the contributions expected from them from college to college. Among them:

  • Lump together student and parent assets as "family assets" and assess the total for purposes of generating an expected family contribution at only 5 percent. Currently, students are expected to contribute 25 percent of their savings every year (instead of the previous 35 percent, which still holds under the federal formula). And parents now are asked to contribute 5 percent of net assets over $50,000, with lower percentages applied to the first $50,000 of assets.
  • Count home equity as an asset, but cap it at 2.4 times family income (minus mortgage debt) instead of the current cap of 3 times income. The reduction in the size of the expected contribution could be significant for a middle-income family with a house that has appreciated over the years.
  • Apply a cost-of-living index so that people who live in expensive cities get their allowable living expenses adjusted upward. "We all recognize that living in Manhattan, Kansas, requires less income than living in Manhattan, New York," the group's report noted.

Whether the recommendations will change the institutional methodology, and then be followed by colleges other than the 28, is the obvious question. The report acknowledges that marketing pressures could make it tough to get colleges to play together nicely. "My hope is that as time goes on, the methodology will make sense and more and more people will decide to use it," says Don Saleh, associate vice president for enrollment at Syracuse University, who helped draw up the recommendations. Meanwhile, the aid office of each college on your list can explain exactly how your contribution is determined. Don't be afraid to ask about wiggle room. You might learn, for instance, that while the policy is to count a stepparent's income, an exception is possible if the stepparent flatly refuses to contribute.

Even if all of the colleges in your candidate pool somehow do agree on how much you'll owe, their financial-aid packages may still vary because of "preferential packaging." A college that badly wants you might make outright grants a higher proportion of the total, for instance, while a college less keen on snagging you might lean more heavily on loans and work-study. At Johns Hopkins, for instance, half the incoming class enrolls in the natural sciences. To encourage diversity, students in other majors receive packages with no loans as an incentive to attend.

In some cases when the aid budget is tight, the package won't come close to meeting a family's need. "Most schools don't have enough money," says Sandy Baum, a professor of economics at Skidmore College and an expert on financial aid. "They 'gap' people, and they may choose to gap different people differently." Since even schools with generous funds run out-the point of aid is to give it away, right?-it's smart to file aid applications as early as possible. Your FAFSA ought to be in as soon as possible after January 1; due dates for other aid applications vary by school, but waiting until the last moment is a bad idea.

Public institutions, while constrained by the federal methodology, still have leeway in assembling an aid package. Like the privates, they can award merit aid: Iowa students who are National Merit Finalists and make Iowa State University their first choice, for example, get an automatic four-year free ride worth nearly $9,000 a year. (Out-of-state finalists get $6,000 a year.) And, like the privates, they can give students more or less merit aid for reasons that can seem capricious.

Suppose, for instance, you are Brandon Lauer or Michelle Cina, 19-year-old sophomores at West Virginia University in Morgantown-close friends and super athletes who graduated from the same high school in Clarksville, Md., both with high GPAs. Lauer was a nationally ranked wrestler in high school, going undefeated in 111 matches. His athletic scholarship at WVU pays about $11,000, or 75 percent of the bill. Cina was an elite-class gymnast in high school. Her athletic scholarship gives her a free ride worth about $16,000 a year, even including an allowance for books. Both chose WVU because of the strength of the program in their sport. But wrestling is one of the men's nonrevenue sports that are getting hammered in part because of funds redirected to women's sports. "Almost all the girls on the gymnastics team are on scholarship," says Lauer. "For us, money is so tight they take it away if you're not performing." Says Cina: "Brandon and I laugh about it."

Whatever the package, the initial offer is strictly conditional. The school will at least want corroborating tax information from the previous year. And many private schools and some public universities run all aid applicants through "verification," an auditlike process in which the college asks for tax returns, bank statements, and other paperwork that can back up your claims about income, assets, and expenses. The University of Virginia, for instance, verifies financial information for all aid applicants.

Most aid administrators agree that if you don't get the aid you think you deserve, you should appeal. Your circumstances may warrant a closer look than they got the first time. Or a mistake on the aid applications could come to light (frequent goofs include claiming college expenses for a sibling who has since dropped out and stating your adjusted gross income instead of the total). And every year more families speak up automatically, even if they don't really have a good reason. "Everybody appeals these days after they get the initial award-I call it 'Let's Make a Deal,'" says Jim Stevenson, director of financial aid at Rensselaer Polytechnic Institute in Troy, N.Y. "We don't increase every package, but we do make a fair number of adjustments. I have a fund at my disposal for it."

Is it possible to play off schools against each other? "Some schools really do bargain," says Baum. "Most do not." The widespread assumption that most do infuriates aid representatives. "Parents think somebody out there is getting a better deal than they are. It's like [they're] trying to get a car deal," laments Yvonne Hubbard, director of student financial services at the University of Virginia. Yet how are families to know which schools are willing to haggle? And what's the difference, really, between colleges like Brown University and Carnegie Mellon that say they want to see other offers but won't negotiate, and colleges that actively bargain? It's a murky area. Following a few ground rules gleaned from discussions with aid officers, however, should better the odds of getting the maximum award:

  • Make contact early. Every family has something quirky about its finances-an upcoming one-time bonus, pending hospital bills because of a serious illness, an inheritance, a business start-up or serious reversal. Let the aid office know even before you apply for admission. The more the office knows, the better.
  • Beat the deadlines. Sure, you don't have to have all of the verification information in until May 1. But that's what everybody else thinks, too. Dealing with a family's tangled finances during crunch time puts tremendous pressure on over­worked aid representatives. That's when mistakes happen.
  • Get organized. Keep your files updated, know the facts, and maintain a call log to verify whom you've been talking with, when, and what about. If you're comparing offers from different schools, consider the example of a Milwaukee mother who prepared a spreadsheet of the offers.
  • Go to the top. If you're not satisfied with what you're hearing from an aid representative, ask politely but firmly to speak with the director of financial aid. Most say their phone lines are open to anyone who makes a specific request.

Sometimes a college can unwittingly add to the suspicion that gamesmanship is built into the aid process. During a campus tour last spring, a Brown admissions officer told a gathering of high school students that the university only provides aid that is based on need. Then he added that if a student is offered a better package by another school, Brown's financial aid office should be informed. "Our financial aid staff is very experienced," he explained, "and will ask other questions to try to help you increase your need." Not exactly, says aid director Michael Bartini. "We want to make sure families have provided all the information we need, and that we are interpreting it the right way."

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