The college equation: obtaining financial aid is vital to retirement savings balancing act
By Gail MarksJarvis
December 14, 2008
www.chicagotribune.com/sports/oly....0,4897248.story
Sending a child to college is a retirement issue.
Families must grapple with that reality as high school seniors apply for college: If parents have lost jobs or had their retirement savings ravaged by the stock market, they could be putting themselves in a precarious position if they tell children to pursue any dream, and Mom and Dad will simply pay.
After all, if you devote too much money to college now, you won't be able to go to a bank when you are 80 and ask for a loan to cover food, medicine and electricity.
But that doesn't mean to say no to your child's dreams or to focus only on the cheapest school nearby. In fact, doing that could cause you to spend more than necessary. If you have lost your job, you might be in better shape for college expenses than when you were employed.
That's because some colleges provide substantial financial aid, in the form of free money or grants, to students if parents are unemployed. But you can't assume that a particular college will do this. Financial aid practices vary between institutions, and the way one college would look at a particular student is different than the way another would.
So parents and their college-bound children will need to concentrate on college and financial-aid applications as a second job over the next few weeks to maximize the aid that might be available.
Your first move is to determine what you can and can't afford by running an estimate of how you are positioned financially. If you are out of work, don't consider credit card debt or home equity loans as a way to get through the college years. And if you have a job, make sure you are on course to handle emergencies and retirement. Try the "ballpark estimate" calculator at
www.choosetosave.org to see if you are likely to have enough savings for retirement.
Then, do a calculation to see how much financial aid your family might receive. You need what's called an "expected family contribution" calculator. Find one at
www.finaid.org/calculators/finaidestimate.phtml, and do both the "federal" and "institutional" calculation.
The federal calculation applies primarily to public colleges and universities, and the public institutions generally have less financial aid available for middle-income families.
Private colleges can be a better bet because they often have more grants and scholarships available for middle- and upper-middle-income families. The institutional calculation will give you a sense of how you might fare at a private college.
If you are likely to qualify for aid, you must work hard to obtain it. Students must polish essays and applications and may find books on essay writing helpful. Clever applications can attract more aid.
Kalman Chany, author of "Paying for College Without Going Broke," encourages students to apply to about a dozen colleges, with a mixture of public and private schools and close to home and away from home.
"Do not rule out any school as too expensive," he said.
Colleges look for different types of students. They seek certain talents and skills and geographic and cultural diversity, as well as grades or SAT and ACT scores that are slightly above their average.
Don't try to judge ahead what they will want. One year a school might be trying, for example, to fill a certain seat in the band, and another year that school won't have such a need. On that basis, schools use financial aid to sweeten the deal to certain prospective students, Chany said.
"This is a business," he said. "They will ration financial aid and give what they think they have to, to get you into the class."
This, of course, is less true of the most elite colleges. But they try to attract low-income students who might otherwise think that a top college is out of reach. In fact, the most elite, including Harvard, admit students free if they are from low-income households.
With the word out about those practices, competition is great to be admitted to the colleges. While the most prestigious schools often have the most aid available, those that are less popular sometimes compete more by offering aid to students who would not normally qualify.
Use the U.S. News and World Report college guide to identify second- and third-tier schools, which might be under some pressure to fill the freshman class when families are cutting back on college spending.
"What people don't realize is applying to an out-of-state public university can be the most expensive option for a family," Chany said. That's because financial aid might not be available to middle-income people who could receive substantial grants at private schools.
He suggests parents have a frank discussion with children, urging them to apply to all schools that interest them, but realizing they may have to bypass some if the aid offer is deficient. Once students receive offers, they can compare financial aid packages. Sometimes they can use an offer from one school to negotiate a better deal from a top-choice college.
To enhance chances of obtaining aid, check the average SAT and ACT scores at each college in guidebooks. A student will be most attractive to schools where his or her score exceeds the average. By inducing students with high scores to attend, the colleges can lift their rankings on various lists, and that helps them attract more students later.
To obtain aid, families have to fill out forms called the FAFSA or Profile. It's a laborious process that takes as much care as a tax return. It's easy to make a mistake, such as reporting 401(k) savings as assets even though retirement money does not have to be reported as an asset, Chany said. His book alerts families to strategies that enhance financial aid awards.
Along with those forms, families must provide a tax return to financial aid offices. In the case of a recent job loss, they must submit a special letter letting officials know their tax returns overstate their ability to pay for college.
Your child can finance part, or all, of the cost of college through low-interest government loans called Stafford or Perkins loans. Low-interest state loans also may be available. Start by seeking information from college financial aid offices rather than going directly to a bank.
Meanwhile, if you find that your family cannot get adequate financial aid and your retirement savings are substandard, try this strategy: consider a nearby state college for a student's first two years of college so you can cut costs. Then, if a student wants the prestige of a diploma from an elite college, it's possible to try to transfer for the last two years of school.
Gail MarksJarvis is a Your Money columnist. Contact her at gmarksjarvis@tribune.com.
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Some of the above topics have been touched on in other articles. I found the information with regard to out of state "state schools" interesting especially the idea that private colleges can be considerable less that paying out of state tuition. It makes sense to compare all your options.
