The college decisions are mostly in and there’s lots of good news for the high school class of ’09: Many private colleges accepted more applicants than usual this year. The bad news is the reason why: the recession.
Colleges this year are expecting the economy to affect the numbers of teens who choose to attend their schools. Surveys point to families looking much closer at financial aid packages. “Students are shopping around — no doubt about it,” said Phil Day, president of a financial aid administrators association.
And that’s exactly what they should do, according to Seth Allen, the dean of admission and financial aid at Grinnell College. A member of the Board of Directors of The Common Application, Allen answered some questions about financial aid.
Q: How should families approach financial aid? What can they expect?
A: The first thing I think, there are families out there who make a reasonable income. They feel comfortably well-off. They might be inclined not to apply for financial aid. That’s a mistake. A two-income household with one child that makes over several hundred thousand dollars is not likely to qualify for aid. But somewhere south of that, even families who earn $150,000 to $180,000, they really should sit down and fill out the Free Application for Federal Student Aid (FAFSA) — that’s the base instrument almost universally used by colleges/universities for need qualifications.
Step Two: While I’m sure financial aid offices don’t want to be inundated, there seems to be a hesitancy to engage financial aid offices about what might be available and if a family might qualify.
Without FAFSA data, the aid office can’t give a specific recommendation, but they can talk to a family in general and give very good guidance to the family about what they might expect.
A typical aid package is composed of three components: Grants from the college or university are typically the largest. The money is given to the student and family to fill part of the gap between what the college expects the student to pay and total cost of attendance.
The second component is loans. Students, especially very needy students, are packaged with favorable loans and low interest rates (Sallie Mae recently changed the payback policies for its student loans so that students make interest-only payments while they are in school rather than fully deferring payments). The third component is a job on campus, which is typically packaged as a federal work study job. The government earmarks money to colleges and universities to subsidize college jobs.
On their websites, colleges will often report out the average need-based package. That can give families a sense. They shouldn’t read it as “if I apply, that’s what I’ll get.” But it is a proxy about the kind of package they might expect to see.
Q: So, what should a family do if their 529 accounts have plummeted?
A: Colleges would take the 529 as an asset specifically earmarked into college and factor that into family contribution. Most financial aid is not done on a real-time basis. It looks back at the previous year and what was available at that time goes into the calculation for the next year. Could a family make an argument if their savings and 529 have gone down dramatically? They probably could. And if the college has the resources to meet that need, it would be likely to do that.
Families now are going to feel far needier than they’ve felt in years, collectively. Colleges recognize that. At the same time, some of the income that colleges have relied on from endowments has gone down as well. I’ve heard from many institutions that they are going to put more funds to financial aid. At the same time, those are not limitless funds. Families need to be aware that colleges don’t have the same strong income that they’ve had in prior years (donations and endowments are down). There’s potential this year more than in the past that they won’t be able to fund that gap.
Q: What else should families consider?
A: Financial aid officers have the ability to make professional judgment calls. Families fill out a FAFSA and a CSS profile, send that in, and that helps the financial aid office make a calculation.
Oftentimes, family situations aren’t that neat and tidy. Families have expenses that put pressure on finances that make the federal calculation of need not workable. If they have other kinds of qualified expenses, they can submit documentation to the financial aid office that establishes those expenses as legitimate and they can take that into consideration to recalculate. That’s one way families can find ways to afford college this year.
For example, a student might have a sibling at a private school.
That’s not automatically taken into consideration and isn’t asked for on an FAFSA form. Many colleges consider that a legitimate expense and can take that off of the family’s income. That will make the family more eligible for a larger aid package.
Another example is the cost of living differentials in different parts of the country. Not every aid office will have a policy to do something with that information. But families could make a case for the allowances given housing and cost of living costs in your area.
Q: What about other government aid?
A: There’s not a lot at the moment that we really know for sure with the new administration and secretary of education. But there are some nice things in the stimulus package that would be good for families to understand.
Pell Grants: For very low-income families, the federal government grant is increasing by roughly $600 dollars from this year to next year. That will help make college a little more affordable.
American Opportunity Tax Credit: This is up to $2,500 for families and is partially refundable. Very low-income families can get up to $1,000 back. So, it doesn’t help on the front end. However, the income levels on this have been raised dramatically. Under old tax credits, income levels were under $100,000. Under the new plan, the adjusted gross income is up to $160,000 for married couples. It should hit a broader swath of the middle class who, I think, is acutely feeling the pinch of these college costs.
