College Admissions: Why You Need An Outsider’s Perspective

I recently saw a question posted by “David” on one of those “Ask an expert” type sites – it was all about financial aid – and the answer to the financial aid question was only half-right. Half-baked information will get you half-baked results.

But, what struck me more was the “self-assessment” of the person writing the question. It struck me because I “see” this A LOT from students.

“David” is interested in MIT but is now considering Yale,too, because of information he came across regarding financial aid on Collegeboard.com.

Here’s how he assessed himself (and his question):

“I have straight A’s throughout my high school. I have a pretty good SAT and ACT scores. I can write a killer essay. I have been doing a few extracurricular throughout 4 years. I guess recommendation is not a big problem. So I want to have a shot at MIT.

However, when I was searching for Yale this morning, my mind starts to change a bit. So here is my question:

– Does the average financial aid package mean the total money/scholarship you’ll get for one year (two semesters)?

– If that is the case, does it mean that average students pay around $2,000 each year for their tuition (ignore room, books, and other costs first)?

– So, if I’m lucky enough, does it mean that I can get a ride to college for FREE or almost FREE?

– Let’s say that I’m REALLY lucky, and get a scholarship that worth more than the cost of my tuition, does it mean that I can even “EARN” money as a college student (if I spend less on the other costs)?”

In this one statement, I can tell a few things about David, and so will the admissions officers.

First up, he believes that “Great grades, strong SAT scores and lots of activities are enough”. Well, the THOUSANDS of students who apply to MIT and Yale also have them. So, what else do you have to offer, David?

Next: “I can write a killer essay.” David, even Hemmingway needed an editor. And, writing a decent essay in class is not the style of essay you’ll need on the application. And, as a former English teacher, I’ve met a lot of English teachers who can’t write. So, relying on them may not be the best idea, either.

Next problem: “I guess recommendation is not a big problem.” (The way this is written makes me question his ability to “write a killer essay”). Getting a good recommendation is not simply a question of asking someone to write one.

And, finally, my favorite: “Let’s say that I’m REALLY lucky, and get a scholarship that worth more than the cost of my tuition… ” again, apart from the lousy writing, this sentence screams ignorance about the colleges he is looking to attend.

Yale (and the rest of the Ivy League) and MIT (and most of the other Ivy-Type colleges) do not offer scholarships. If you have a financial aid need, they will offer you need-based aid. But they don’t offer scholarships – because they don’t have to.

David also believes he should get a scholarship, but has no clue as to how or why it would happen.How do I know? “Let’s say that I’m REALLY lucky, and get a scholarship… “

There’s a lot he doesn’t know about these colleges and about the college search, selection, application and funding process in general.

And when you don’t know what you don’t know, you end up disappointed.

David may very well have a good shot at schools like Yale and MIT; AND, there might be other colleges he isn’t even considering yet that would be even better fits for the type of student he actually is. Problem is, there’s a lot he doesn’t know (and most likely there’s a lot his parents don’t know, too).

The solution is to get help with all of this. College is a huge investment of time, effort and money – now is not the time to cut corners.

Your Smart Plan For College Assignment:

Take a moment to be really honest with yourself: do you see a bit of yourself or your student in David’s story?

Do you know how the college process really works?

Are you sure?

Outline three steps you could take right now (based on the mistakes “David” is making or to avoid the myths he’s believing) so that you don’t end up disappointed.

If you can’t list three steps, it’s time to get some help.

6 Reasons Your College Financial Award Changed

“Why did my financial aid award change?” is typically a question asked after the student has lost money compared to the previous year.  Rarely does anyone ask this question if they received more money.

Here are 6 reasons why a student’s financial award offer will change from year to year…

1.  The family’s income has changed.  If income goes down, then the expected family contribution (EFC) will likely go down.  This typically results in a better financial aid package.  However, it is more likely that your income went up from the previous year.  This means your EFC went up and your financial aid package will be lowered according to the established guidelines.

2.  The family’s assets have changed.  As with income; if the assets go up, EFC goes up.  If the assets go down, EFC goes down.  Since most families will spend assets while their students are in college, this will most often have a downward pressure on your EFC (good for you).  But if you won the lottery or inherited money, those new assets are going to drive your EFC up (bad for you… sort of).

3.  The number of students in college changed.  The more students you have in college… the lower your EFC will be.  If a student graduated last year and you only have one in college this year, then you will see a big spike in that student’s EFC.  Consequently, they will get less financial help from the college.

4.  Changes in the federal Stafford loans.  Stafford loan amounts increase as a student progresses through college.  Currently freshman students can borrow $5,500; sophomores – $6,500; juniors – $7,500; and seniors – $7,500.  As students are able to borrow more under the Stafford program, colleges will typically lower the other sources of help in the financial award.  For instance, the student get’s an addition $1,000 in a Stafford loan, but their college grant is lowered by $1,000.

5.  Your college’s endowment has taken a hard hit in the market.  One of the unfortunate results of the current recession is many colleges have seen their investments drop… big drops in some cases.  This means the schools have less money they can give to their students.  The recession is unfortunately limiting the amount of money many schools are able to give away compared to previous years.

6.  Your college is a cheap-skate.  It is rare, but some colleges will do a bait and switch to get freshmen students.  They will give them very generous offers their first year, but then pull back the money in the subsequent years.  This is not common, but there are unfortunately some institutions that will do this.

5 Reasons NOT Saving for College Is a Good Idea

Okay. You caught me. Indeed most of the time not saving for college is a bad idea. Now and then I’ll run into a parent who tells me they are not saving for college in order to increase the chances their child will get financial aid. The thought is that having money makes colleges and the government figure you can afford to pay for college and therefore no aid is needed. This, to a limited extent, is true. If you have millions in the bank I’d rather not have my tax dollars taken and used to pay for your kid’s college so that you can spend the money on first class tickets to Vail.

However, assuming that saving for college will mess up financial aid is short-sighted and makes many assumptions. The first one being that there will be financial aid available for your child. We don’t know what the government will have in the way of aid in 5, 10, or 15 years. You should also realize that the majority of financial “aid” is in the form of loans. You very well could be creating a situation that burdens your kids with onerous loans they will have difficulty paying back in exchange for a little better lifestyle now. I wouldn’t call that sound financial planning.

Another reason that saving won’t hurt much when it comes to aid is that the government knows that you have more to save for than just college. If you save in your name rather than your child’s (including the 529 College Savings Plans and Coverdell ESAs) less than 6% of the savings in those account types will be counted against financial aid. Yes it does count against you a bit, but not much as assets held in the child’s name at 20%.

There is a good reason for not saving for college: You have more important needs for that money. Note I don’t say “if you can’t afford it.” That’s because determining affordability is often simplified to seeing if there’s money left at the end of the month. Most of us find ways to spend any money that is available. What we spend it on might be a true life-giving need, but it also might be a dubious want.

So what may take priority over college savings? Being a retirement planner, I like to see money put away for the time when you can no longer work. Of course, food, clothing, and shelter also seem like needs. But let’s be clear: you can spend $20, $40, or well over $100 on blue jeans. I’m thinking the $100 pair doesn’t count as a need.

In the end though, some folks just won’t be able to afford to save for college without leaving themselves short in other vital areas. That’s not selfish, that just is. But for the rest of us, it’s an area that deserves our attention.

Paying for College: A Gift That Keeps On Giving – Helpful Strategies for Grandparents to Lend a Hand

Adding in the cost of college tuition, fees and housing and this number can easily double. But paying for college shouldn’t require winning the lottery. Careful coordinated planning by parents and grandparents with the help of a trusted financial adviser can help to reduce the burden on families and their kids.

Before Grandma or Grandpa Writes a Check

Having the help of a relative certainly will take off some of the pressure. But before anyone writes a check, you should have a serious discussion about how best to help.

Providing help in the wrong way can be harmful to the student’s chances for getting financial aid.

Consider these strategies that will help the student in a financial-aid friendly way.

Consider Paying for Student Loans After Graduation

Financial aid is based on various formulas to calculate the Expected Family Contribution (EFC). Most of this is based on the information provided on a student financial aid form about parental and child assets and income.

The financial aid forms do not ask about financial assets of other relatives.

If you or a relative are in the fortunate position of having extra cash, you may be inclined to help. But providing a gift of cash directly to the parents or the student will result in an increase of reportable assets which will reduce the calculated need, increase the EFC and, in turn, reduce the amount of possible financial aid.

And if a helpful relative steps up and indicates that they will help, then the financial aid office will also reconsider the financial need of the student. Money paid to the school on behalf of the student could be considered to be like any other outside resource such as a private scholarship which reduces the aid offered by the school.

A better way is to let the student qualify for the maximum aid while still in school and then helping out by contributing toward paying off the loan balances.

Family EFC Too High?

For those who know that their EFC is too high to qualify for aid, there are still options for grandparents who are still able to help out. These options at least offer some tax savings to them.

Tip #1: Pay the College Directly

Since aid is not going to be affected, then simply pay the school directly. Each grandparent can give up to the annual gift limit ($13,000 in 2010) to each student. This will help reduce the taxable estate of the grandparent and is an exempt gift to the student.

Tip #2: Establish a 529 Savings Plan

For grandparents who want to help out with college costs, a qualified tuition plan offers a great choice. Money set aside in these plans can be used for eligible expenses like tuition, fees, books and equipment.

These accounts offer a variety of investment options that can be tailored to the time frame before funds are needed. The funds grow without any taxes and if used for qualified expenses can be withdrawn tax free.

Grandparents can transfer large amounts of cash into these accounts without triggering gift tax. Each grandparent can effectively deposit up to five years of annual gifts which right now is $65,000. The assets in these accounts remain in the control of the grandparent and are not countable assets for the student.

Tip #3: Gift Appreciated Assets

Assuming that the grandparent has long-held assets that have increased in value, one way to pay for college tuition and lower a potential tax bill is to gift these highly appreciated assets to someone in a lower tax bracket. This could be the child or the parents.

This saves on the large capital gains tax bill that the grandparents would likely incur if they were to sell the appreciated asset and use the proceeds to help pay for tuition or other expenses directly.

Tip #4: Set Up a Charitable Remainder Trust

For those who are both charitably inclined as well as desiring to help out a student, the grandparents can establish a trust.

A Charitable Remainder Trust can be funded with highly appreciated assets which can then be converted into income-producing assets. The income that is generated can be used for helping the student. Eventually, the remaining assets can then be gifted to the charity. This strategy helps grandparents avoid paying capital gains on the assets and removes the asset from the taxable estate. While not an issue this year (no estate tax in 2010), this will change in 2011 with no congressional action.

For more tips and help, consider using a qualified college aid planner.