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.