Are you the parent of a high school student? Are you starting to plan for college? When my son was considering colleges, the comment I heard most often from parents who’d already put their kids through school was, “count on it costing three times what you think it will cost”. I was horrified. How would we possibly be able to afford to pay three times what we’d planned for? But they weren’t kidding. College costs, including room and board, continue to rise. In 2014, parents spent an average of $24,164 on college, a 16% increase over 2013. But don’t despair. Below are some great tips on financial aid and how to use it.
One of the most important things for parents to figure out early is the “total cost of degree attainment, not just the cost of the first year”, advises Michael Johnson, Director of Financial Aid & Scholarships at Portland State University. He says to be sure and ask college financial aid offices about the school’s “recent history of annual cost increases and how those increases might affect financial aid eligibility for subsequent years”. Once you have the big financial picture, then you can assess how to tackle the costs.
Like most parents who save for college, we had some funds tucked away in a traditional savings account and hoped it would be enough along with our annual income. Today, there are a lot of great college savings options out there – 529 plans, Coverdell Education accounts, EE or I series savings bonds and UGMA custodial accounts – but if you are one of the 50% of American families who have not saved for college or think your current savings will fall short, financial aid may be your ticket to paying for college. It was something we hadn’t really considered, thinking we wouldn’t qualify.
Financial aid comes in many forms – grants, loans, scholarships and work-study – and from many sources, both government and non-government. Grants and scholarships don’t have to be repaid. Loans do. To qualify for need-based loans, you may need to limit your assets and reduce your income the year or two prior to your child starting college. Your CPA or financial planner can help you determine the best ways to do this as well as determine the education tax credits and deductions you may be eligible to receive later.
To take advantage of all the many types of financial aid and avoid common mistakes, you’ll need to know some basic strategies and ask the right questions. Don’t be one of the 60% of families who had some regret about their college financing choices. Read on for tips about how to avoid these common financial aid mistakes…
Common Financial Aid Mistakes and How to Avoid Them
- Families not submitting a Free Application for Federal Student Aid (FAFSA) because they think they make too much money to qualify. According to Johnson, the FAFSA is the first step in the federal loan process and in potentially qualifying for Federal Work-Study. In addition, many states and other scholarships also use this document to determine eligibility. You should submit a FAFSA every year your student attends college, regardless of your income level.
FAFSA uses both the student’s and the parents’ assets to determine eligibility. The lower your assets, the better chance for aid. The year before your student is planning to enter college is a good time for your student to reduce his savings by purchasing big-ticket items like a computer and for you to build your retirement savings accounts, which are not counted as assets on the FAFSA.
- Submitting the FAFSA after priority deadlines. There are several types of financial aid that have very early deadlines. “If you miss them”, says Johnson, “your student misses out on some valuable options”. FAFSA has its own deadline – midnight of June 30th each year, but state deadlines vary, and each college has its own due dates, some as early as January 1st. So, be sure to ask the college whether its FAFSA deadline is the date the college receives your FAFSA, or the date your FAFSA is processed.
- Applicants not telling financial aid offices about outside scholarships they’ll receive. Schools often adjust their financial aid packages when other scholarships are received. Be upfront about all the aid your student is receiving (Bright Futures scholarships, grants from local businesses, etc.) to avoid the unpleasant surprise of an adjustment later in the process.
Once all the paperwork is in, your student should receive financial aid packages from his chosen colleges, usually included with the acceptance letter. Evaluate them carefully. Read the fine print, the requirements for maintaining aid through the course of the degree, and the deadlines for responding. Scholarships and grants that do not need to be re-paid are preferable to loans, but loans will help. Compare each package, ask questions to clarify, and make that college choice. In our case, our son selected an in-state college that offered him the most scholarships. It was a great relief to us.
Be Aware of FERPA
Now, you have some tips on how to avoid common financial aid mistakes, but beware of one potential surprise. The Family Educational Rights and Privacy Act (FERPA) permits the school to legally disclose educational and financial information only to the student, unless the student signs a form allowing you, the parents, to get information. Even if you are paying all the bills, without his/her consent, you will not be able to talk with anyone in the school’s financial aid office about your student’s finances. So, be sure your student signs a FERPA Consent form and gives you access to his information. That way, you can keep track of the finances and your eager student can focus on growing up and getting good grades!
Updated on 2/5/16:
We were contacted by Kathleen Carter at Educator Labs and asked to post this list of unique scholarships available to students. Some of them are pretty surprising – Visine? Really? Makes me want to buy more saline solution… 😉 Good luck!