College: How to Pay for It

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," Phil Day, president of a financial aid administrators association, told The Post.

And that's exactly what they should do, according to Seth Allen, the dean of admission and financial aid at Grinnell College. Allen is also a member of the Board of Directors of The Common Application. Here's some of a Q&A with him on financial aid:

Q: How should families approach financial aid? What can they expect?

Allen: 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 Web sites, 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.

So, what should a family do if their 529 accounts have plummeted?

Allen: 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.

What else should families consider?

Allen: Financial aid officers have the ability to make professional judgment calls. Families fill out an 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. The basic costs of living in D.C. are far higher than if you lived in the Harrisburg, Penn., area. 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. Where they may not help is something that’s clearly a voluntary choice -- for instance, I live in New York and I want a break because I live in the West side in a very expensive apartment. You could live in less expensive place in New York.

What about other government aid?

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.

By Stacey Garfinkle |  April 6, 2009; 7:00 AM ET  | Category:  Teens
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Comments




The FAFSA needs to be filled out for state aid also. Many applications for state grants and loans will not be considered until the federal ones are calculated. This is the case with New York's new state loan program and others,too.

New York State Higher Education

Posted by: collegeloanconsultant | April 6, 2009 8:34 AM | Report abuse


Great tips . . . thanks. http://lipstickdaily.com

Posted by: ElaineatLipstickdaily | April 6, 2009 10:19 AM | Report abuse


My wife and I work our a--es off and we don't qualify for a penny of aid. I have one in college now and another in the fall. Moral to the story, sit around, don't get a good job, suck of the goverment t-t and you will be rewarded. I know, I know....I should be glad I can afford college for my kids. Trust me, I don't drive a Mercedes, I don't have a summer home, etc. I get by because I work hard. I pay my mortgage too. No bailout for me. No assitance to people like me. Makes one want to scream!!!!

Posted by: nosurprise2me | April 6, 2009 11:06 AM | Report abuse


Great info today. We work a lot too and save. But with the market behaving as it is, it does make me wonder if we will have enough when the time comes.

My back up plan is send the kids to two years of community college and two years of college at George Mason. If that comes to pass, we can pay out of pocket with the money we are currently paying for two kids to go to day care.

Posted by: foamgnome | April 6, 2009 11:20 AM | Report abuse


I would not abandon a plan to work and save for college. I have heard more than a few stories of parents who were going to finance college with their home equity and don't know what they'll do now.

My husband and I never owned a mini-van or had a car payment and all that money went to college savings. We lived in a small house that we gradually remodeled. Our furniture wasn't ever new. Our goal was for both children to attend without any outside debt.

One child was a good student and qualified for a fine school, the other child wasn't, but the tuition in-hand opened some doors for him.

My advice to early in your child's life set a goal. We said 100% no-debt. If you doubt that's a real possibility then shoot for only 50% debt. Then set your saving plan to meet that. You can't wait to see what money is left over to set your plan.

Those mini-vans I used to envy are now all junkers but my kids have a relatively debt-free future. Which is worth more to you?

Posted by: RedBird27 | April 6, 2009 11:32 AM | Report abuse


For what it's worth: One of the best ways to save money on collge tuition is to make sure the student really WANTS to go to college. In my job, I see students every semester who throw away thousands of dollars on tuition for classes they never attend. They either fail out and have to repay their loans, or they take longer to complete their degrees, adding to the overall expense. A year away from school slugging it out in the "real" world may not be a bad idea.


BTW: nosurprise2me seems to suggest that if you DO qualify for aid, you either do not work at all or you do not work very hard. Not true by a long shot! Many hard-working people do not earn good wages.


Posted by: writinron | April 6, 2009 11:34 AM | Report abuse


Stacey makes a great point about the cost of living differentials. I grew up the child of two teachers in a region with the highest cost of living in the country. For part of my education, I was their dependent, and we never qualified for anything other than Stafford Loans. I'm still paying those loans. Towards the end of college and for grad school I filed independently and was able to qualify for tax credits.

I would also suggest that you encourage your kids to work through school. It did a lot of great things for my time management, and the income allowed me to minimize my dependence on my folks.

Posted by: MzFitz | April 6, 2009 12:13 PM | Report abuse


To nosurprise2me,

Don't be bitter that you don't get a bailout or assistance be happy that you are in a position not to need one. Tell me, would you rather worry about possible forclosure or not being able to pay your child's tuition or being able to put a meal on the table? You have a fortunate life, enjoy it rather than being bitter about what others are getting in assistance. I promise you that they would much rather be in your position than to get assistance.


Posted by: Stephanotis1 | April 6, 2009 12:17 PM | Report abuse


I think the first step in "How to pay for college" is to take a good, hard look at what type of value you're getting at those $40,000.00 per year schools.

Is your kid really getting 5x the education at a private school as compared with an in-state school? Will your child have 5x the earning power upon graduation?

If $160k is nothing to you, by all means, go ahead and send your kid to an expensive school for undergrad. But for the rest of us, take a good, hard look at just how long it will take to pay off $160k of loans. Talk to someone who took out $150k in loans, had a starting salary of $30k/yr, and ask that person if he or she still thinks it was a good idea after about 5 or 10 years.

Posted by: afsljafweljkjlfe | April 6, 2009 12:26 PM | Report abuse


We filled out the FAFSA, and it indicated that we could pay about half the cost of a private college. But when our aid offers came back - from five private schools and two public - they all gave us very small offers - about a tenth what we expected from the FAFSA and mostly in Stafford loans. I called several schools and was told that our CSS indicated we could pay more, based, according to one, on our home equity. The equity in our home is about $170,000 (and falling according to a recent appraisal of home values in our area). We have also saved for our daughter's college education since her birth (it might cover four years at half cost). When I read that couples with income of $150,000 might expect aid, I want to laugh. Our AGI was half that in 2008, and though our daughter has been accepted at wealthy, top flight institutions, we will not get aid. I suppose if we had splurged on the million dollar home, never paid down a penny in equity, and taken vacations instead of saving for college, we might qualify. Stop reporting that middle income families are getting aid - unless you have seen the reports sent to families - because our experiences is that the colleges are manipulating this information for their own PR.

Posted by: LKM1 | April 6, 2009 12:42 PM | Report abuse


@12:26, You are correct. Getting a Teaching Degree from Harvard makes no sense.

I was lucky that my parents managed to pay for my undergraduate degree out of pocket and left me with no debt. My mother continued to work beyond her plans to get me through school and I will be forever grateful. This was a great gift, and having discussed this with my parents and husband, we feel no obligation to fully finance our children's college educations. We have been very aggressive in savings and will continue until they enter school, but we have retirement to worry about.

Many a wise man and poster has said "You can borrow for college but you can't borrow for retirement." So while we are making prudent choices, not living in a large house, driving cars much longer than our friends and neighbors, we are also concentrating on socking away as much as we can for our retirement.

Our kids are going to have to make fiscally responsible decisions on what school they attend. Barring any scholarships, they will know how much they have to cover costs, the rest will have to be borrowed. We have quite a few years to go but I won't make any promises to them about paying for all of their college, they'll know everything up front when the time comes to start planning.

Posted by: cheekymonkey | April 6, 2009 12:58 PM | Report abuse


Cheeky,

I'm confused. You say your mom paid for all of your undergrad and that it was a great gift, but you have no intention of even trying to give your kids the same gift? Why?

FWIW, I worked, scratched, saved, scrimped and, yes, borrowed to make it through undergrad. My parents decided halfway through my freshman year that they were done raising their kids and that I was now on my own. I dropped out, got a job and started working my way back to school. My financial situation affected every aspect of my life, from where I lived to the courses I took (work came first, everything else had to fit around it) to the jobs I took after graduation and in law school.

As a result, I decided long before I had kids that I would do everything I could do to ensure that they'd graduate from undergrad debt-free. I want my girls to get out of school with the future entirely open to them, and if it means I need to work an extra decade to do it, then ok. Luckily, DH (whose parents paid for everything) feels the same way.

Posted by: newsahm | April 6, 2009 2:08 PM | Report abuse


"Is your kid really getting 5x the education at a private school as compared with an in-state school? Will your child have 5x the earning power upon graduation?" asks afsljafweljkjlfe...

While the education may (or may not) be a certain number of times greater at an expensive selective private school, data shows that the lifetime earnings of graduates of selective private schools are many times more than at less selective schools. The higher cost almost always pays for itself in the long run. In your example (which in fact I have experience in) while I made $30K coming out (actually $27.3), after 10 years I was making 4 times that. While there isn't a "control me" to compare against, my sister who chose a less selective school earns substantially less.

Some of this is due to career choice incentives. Students with a higher debt burden have greater incentive to choose more lucrative careers. And this again bears out in my family. My sister is doing far greater good for society, but making a whole lot less.

Posted by: 06902 | April 6, 2009 2:26 PM | Report abuse


Well, actually, 06902, I think the best available current data shows that there isn't a difference. The most accurate comparison available is between people who got into selective colleges and attended vs. those who got in and chose not to attend -- it's not perfect, but it does help ensure that you're generally talking about a group of people with the same general universe of grades, SAT scores, educational drive, etc. And that information shows that there really isn't a difference between the two groups -- that kids who chose not to attend a selective college had the same lifetime earnings as those who did.

I think the comparison is a useful one. Not the only one, of course; if you can afford it, I think it's a tremendous gift to be able to tell your kids that they can go to the best school they can get into. But for the other 99.5% of us, it's perfectly reasonable and appropriate to weight the quality of the education and experience against the cost against the potential future earnings. One of my college roommates was off to Harvard for grad school with her fiance; they were going to graduate 3 years later with degrees in (a) social work and (b) religion -- and a combined $120K in debt (20 years ago, to boot). I'm sure they got a great education, but I'd worry about my kid going off to start her life with that much debt and that little earning power.

Posted by: laura33 | April 6, 2009 2:56 PM | Report abuse


Newsham, My parents were in the position to pay out of pocket for college for 3 kids, and my mom's willingness to work an extra 4 years was her call. Might I remind you the escalating costs in college education in the past 20 years. I think my parents shelled out approximately 20K for my 4 years at a VA state school, my calculators are showing it will cost me in the 100's of thousands for 2 kids. We simply can't do it on our salaries. We might get close to paying for half for each, and if they make prudent choices perhaps more, but we'll know in about 5 years. Like I said, in discussing this with with my parents they admit they were extremely lucky to be able to pay for all of us all while also saving for their retirement. They are comfortably retired now and there is something to be said for not being a burden to your children when you are older.

Your experiences are different than mine, and might I add when I was younger and first had kids I thought we'd pay for it all too. Then reality hit and I realized we can't dream up money and cut our already frugal standard of living. All I can say is don't beat yourself up if your situation changes. Everyone thinks that one day their children will take care of them in their old age, and I have come to know that you better plan on taking care of yourself in your older years because there are no guarantees. As our parents age most people become very familiar with this line of thinking.


Posted by: cheekymonkey | April 6, 2009 3:13 PM | Report abuse


My general plan is to pay off our house before oldest child reaches college age. Save since birth and continue to live a modest lifestyle. We also live in a smaller home, don't have cleaning service, drive older cars etc...

But we plan on saying we have X dollars saved for your college. We can afford to contribute Y dollars when you are actually attending.

Then I would leave the decisions up to the child. If a child wants to take their $$ allotted college fund and go to an expensive private school and work and take out loans, I think that is fine. But I won't borrow or help pay back the loans. If kid wants to go to cheaper state school and work some and take out modest loan, that is a fine choice too. Lastly, if kid wants to live at home or attend a cc for two years and have no debt, that is a fine choice too.

I feel that I am obligated to do my best but after that, it is up to the child. If they want to pay loans off for 10+ years post college, I won't begrudge their decisions.

Posted by: foamgnome | April 6, 2009 3:29 PM | Report abuse


Our back-up plan is also 2 years at the local community college and then the final 2 years at the state school living at home for free if necessary. Two of my siblings did that and got fine educations in the end, without a heavy student debt burden. And we could definely afford that even right now.

Posted by: emily8 | April 6, 2009 3:30 PM | Report abuse


Cheekymonkey, I am with you. While I would love to be able to pay for my kids educations in their entirety, I understand that this may be impossible. I also think that having the kids take some of the burden is a good thing, as long as they are not so burdened that they don't have time to study. It is a fine balance. Parents can only do what is reasonable for their means, and if kids are raised with an awareness of what their parents can and cannot afford, they can learn to manage expectations and make the best of what they have.

Posted by: emily8 | April 6, 2009 3:35 PM | Report abuse


"I want my girls to get out of school with the future entirely open to them, and if it means I need to work an extra decade to do it, then ok. Luckily, DH (whose parents paid for everything) feels the same way."

I completely understand that parents often want their kids to have more opportunities, and perhaps an easier path than was available to the parents, but I sometimes wonder if by doing too much for our kids, we are robbing them of the opportunity to learn to do for themselves. Again, it is a fine balance, but sometimes, I think a little bit of a struggle can be a great learning experience.




Posted by: emily8 | April 6, 2009 3:42 PM | Report abuse


Emily, I fully appreciate the cc approach, and not just because of the cost. So many HS Seniors are nowhere near ready to live on their own, and there is no shame in a kid or parent admitting that staying home for a year or 2 is the best thing for an 18 year old.

I also agree with Foam, the choices to our kids will be laid out early on in the process and their will some reasonable input. I can't say there won't be some urging if things sound unreasonable, but we are hoping our kids will be ready to make good decisions.

There will always be those families that will "pay for it all at whatever cost" but to me it almost an offshoot of keeping up with the Joneses. It is one of those life lessons, someone will always have it easier but will they appreciate it? I hope we stress to our kids that they need to value their education wherever they go, whether it is cc followed by a state school or ivy league (please Lord, no!).

Posted by: cheekymonkey | April 6, 2009 4:26 PM | Report abuse


FWIW, I paid every nickel of my college education, undergrad and grad school. Academic scholarships and working 60 hours a week (plus going to a CSS :-) took care of that. DW did essentially the same thing. It wasn't that my parents didn't care; it was that they simply couldn't afford it. They would have helped me financially if they could have, and they helped me in every other way.

I vowed that I would make sure that my kids would go to college with me paying as much as possible, BUT with them having contributed to their own college accounts since they were able. We've saved for the kids' education since they were born, and they saved, too - half their allowances, salaries, etc. went into college funds.

I recognize that that's not the only way to do it, and I respect others' plans, but that's the way I wanted to do it and I'm going to.

My biggest complaint against the FAFSA and the CSS is that they don't take into account how many kids you have, just how many are in college. When oldest DD was applying, the funding calculators ignored the fact that there were three kids behind are, and that in 18 months we'll have three in college at the same time! As far as FAFSA and CSS are concerned, those younger kids didn't exist, and we were supposed to spend every nickel on the oldest.

(That's only partially true. My true biggest complaint about FAFSA is the EFC, which is laughable. The CSS profile is worse, because they seem to want you to mortgage homes, sell cars, etc. to pay for your kids' education.)

Posted by: ArmyBrat1 | April 6, 2009 6:16 PM | Report abuse


"I hope we stress to our kids that they need to value their education wherever they go, whether it is cc followed by a state school or ivy league (please Lord, no!"

Cheeky, DS and two of his classmates have been accepted into Ivy League schools. I don't think any of the three of them are going to go there, though - I know DS isn't, and I think that the other two mostly applied for the "bragging rights." So sometimes they do figure out the right thing.

(DS has until May 1 to make up his mind; nonrefundable deposits are due by then. He's narrowed it down to four, but I have no clue which of the four he's leaning towards. He's leaning AGAINST the one that gave him the biggest scholarship, though. :-(

Posted by: ArmyBrat1 | April 6, 2009 6:20 PM | Report abuse


Some good news at least for recent grads and those planning on entering public service: the College Cost Reduction & Access Act takes full effect on July 1, allowing for public service loan forgiveness and income-based repayment. See http://www.equaljusticeworks.org/press-release/ccraa_resources.html

Posted by: apick | April 7, 2009 2:13 PM | Report abuse


There’s no doubt paying for college can be difficult. Fortunately there are a wide range of options to help, and knowing what they are is key. Here are some tips I always recommend to help pay for college:

1) Put in some leg-work and research and apply to grants/scholarships. Any extra money you’re awarded means less money you’ll need to borrow and pay back with interest.
2) Fill out the FAFSA first-you need to complete this to be eligible for federal student loans
3) Apply to federal loans such as Stafford Loans – Always borrow federal money first as the interest is fixed and relatively low.
4) If you still have a gap in your cost of attendance after exhausting federal funds, then you should research private student loans
5) Look into work-study programs. They are a great way to make some extra money and meet new people around campus.


More information to help make sense of the student loan process is available at SimpleTuition.com

-Ryan Davis- SimpleTuition

Posted by: ryandavis1 | April 10, 2009 12:19 PM | Report abuse


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