Financial Aid Myths

There are many myths out there about student financial aid...

We work hard to explain the realities of college financing for Colorado families. Many families don’t know how the financial aid process works and others don’t know which assets the government and schools include when calculating eligibility for financial aid.

In this busy financial aid season we’ve been running all over the state giving presentations on financial aid and helping families complete their FAFSAs. Check out our calendar to find out if we’re coming to your area or get a group together and invite us. And be sure to visit our Paying for College course where we explain the financial aid process as well as what happens after the FAFSA and how to compare award letters.

One major point to consider that’s not covered in the 6 myths below is that if you think that borrowing might be a part of your college financing plan completing the FAFSA is a MUST! Everyone who completes a FAFSA, regardless of income level, will qualify for Federal student loans. If you’re planning to borrow, federal loans are a MUCH better option than private loans. Federal loans have lower interest rates and better terms and repayment options.

We were thrilled to see this great article on the top 6 big myths about financial aid from CBS’s moneywatch.com. The following myths are directly from the article. Also check out the full article.

6 big myths of financial aid:

1. I make too much to qualify for aid.
Sure, your annual income is considered in the aid calculations, but so is the price of the college. You probably won’t get aid if your child will go to a public university in your state and your family’s income exceeds $80,000. But you might qualify for nearly $25,000 in need-based aid from one of the most expensive private colleges even if you earn $150,000 to $200,000, says Myra Smith, executive director of Financial Aid Services at the College Board. In fact, a family with household income just under $450,000 could be eligible for aid if they have three or more children, with two of them in expensive colleges.

2. Filling out the forms is a waste of time.
While the main purpose of the Free Application for Federal Student Aid (FAFSA) is identifying low- and middle-income families qualifying for federal Pell Grants, some families who file FAFSA and are denied federal assistance can receive considerable aid from the schools themselves. Completing the College Board’s CSS/Financial Aid PROFILE form, used by roughly 270 private colleges, could also land you generous grants.

3. I saved too much to qualify for aid.
This might be the most stubborn financial aid myth. Colleges don’t want to strip families of all their savings. So the aid formulas build in asset protections when determining how much parents must pay. They ignore retirement savings, for example, when toting up assets. FAFSA also lets families shield a great deal of their college savings through an asset protection allowance. Generally the financial aid formula calls for parents to contribute 5.6 percent of their assets per year toward the cost of college.

4. My home equity will kill any chance of receiving aid.
In truth, you could live in a palace and it wouldn’t disqualify you from getting aid at most schools. FAFSA doesn’t ask about home ownership. PROFILE does, but home equity won’t eliminate many families from qualifying for aid. That’s because PROFILE colleges typically use a formula that caps home equity value in its family-contribution calculations, often at an amount equal to 2.4 times family income. With that formula, the college would count just $375,000 of $600,000 in home equity for a family with $150,000 in income.

If your home has appreciated a lot, ask private colleges how they factor in home equity when determining aid, advises Paula Bishop, a financial aid consultant in Bellevue, Wash. Their answers may differ dramatically. Some schools, such as Princeton University, ignore home equity. Others, such as Boston College and American University, include 100 percent of it as an asset.

5. Schools don’t care how many kids I have.
Actually, having two or more children in college significantly increases your chances of receiving aid, says Monisha Perkash, CEO and co-founder of TuitionCoach.com. In fact, it could lower your “expected family contribution” (the estimate of the family’s ability to pay for college) by 50 percent.

Take a family whose expected family contribution is $22,000 for their oldest child’s first year of a $50,000 college. Financial aid could cover the $28,000 difference. If a second child will attend a $50,000 college next year, too, the Expected Family Contribution for each child would be cut in half to $11,000 apiece. Then, each student could receive up to $39,000 in aid.

6. My aid award is accurate.
Like everyone, aid officers make mistakes. If the numbers you receive are out of line with competing schools, contact the aid office to see if there was an error. One of Bishop’s clients was initially denied aid from Scripps College because the school improperly inflated the expected family contribution, forgetting to use Scripps’ formula to cap the family’s home equity. After Bishop caught the mistake, the expected contribution dropped from $40,000 to $28,000 and the family got the aid called for in the formula.
 
Posted by katie powell on 3/4/2010 4:38:37 PM
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Comments
stephanie@datausa.com
Thanks for clearing up the myths!
3/11/2010 12:20:50 PM
 
nathanrcadena@gmail.com
Great article! I will be sure to share this with others.
3/12/2010 1:38:18 PM
 
amalia_410@hotmail.com
This is so true, there are many families that do not understand how financial aid works.
3/13/2010 9:57:35 AM
 
spunkysci@yahoo.com
I have lots of friends that think they won't get any aid because their parents make too much money. I'm sending them here!
3/13/2010 9:52:23 PM
 
mchldunlop@gmail.com
Good read. I always used to think that saving to much money would make me unable to qualify for financial aid. It’s nice to read that FAFSA allows you to shield most of your savings and allows a student and/or their parents to not have to wipe out there savings.

Mike
3/17/2010 7:47:10 AM
 
graymaestas@gmail.com
yea. that helped a lot.
3/17/2010 8:51:54 AM
 
rsgonzalezavila@aol.com
Thanks for explaning some of those urban legends.
3/31/2010 7:56:31 PM
 
glas94@aol.com
Even working as a guidance counselor, there is so much to learn. In three years my first child will be off to college and the information here is wonderful. It's kind of a different world when your dealing with your own kid and finances. :)
4/1/2010 5:16:49 PM
 
Stephanie
This is great information! It will really help people I know that will be starting college soon.
Thank you!
4/1/2010 7:55:12 PM
 
Michelle
Wow, good to know.
4/2/2010 9:06:32 AM
 
pl611@hotmail.com
Wow this is very convinient.
4/2/2010 1:29:16 PM
 
oolyndah@hotmail.com
This actually helps and puts a lot of clarity on those "iffy spots."
4/2/2010 9:19:16 PM
 
Avatar
student
That's great to know! Thanks!
4/3/2010 7:48:40 PM
 
Avatar
mic
wow isnt that something
4/4/2010 5:36:13 PM
 
RoehrichK@gmail.com
Filling out that FAFSA as soon as possible has helped me out tremendously! As soon as your taxes are filed, fill it out!
4/11/2010 9:05:41 PM
 
gtrider9@aol.com
So glad all these articles are available!!
4/21/2010 4:43:35 PM
 
James29_89@msn.com
I never thought to check my award before. That is a good idea, since it is possible that the award offered could be lower than what I actually should get.
4/25/2010 4:38:15 PM
 
tgrosz@mscd.edu
ok thank you!
4/29/2010 11:12:44 AM
 
mpwilkins@student.cccs.edu
good things to know
5/7/2010 4:05:50 PM
 
rbueno@mscd.edu
Thanks for the information. It is really helpful.
5/12/2010 3:21:28 PM
 
Avatar
tiernauna@yahoo.com
For me, the absolute best bit of info was to bear in mind that the cap amount of my borrowing was not to exceed the amount that I would earn in my first year of employment after graduating...wish I had had that piece before now.
5/15/2010 4:10:29 PM
 
kpenning@mscd.edu
It never hurts to ask for help, even when it means helping to pay for college.
5/15/2010 8:45:15 PM
 
Juanita
wow I never heard anyone say anything about number 3. that is crazy but also not surprising
5/19/2010 7:37:00 AM
 

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