With college tuition rising unchecked and the prospect of student loan debt frightening many would-be borrowers, competition for financial aid dollars gets tougher all the time.
What’s a family with college-bound kids to do?
For starters, don’t panic. An affordable college education remains within reach if you plan and proceed wisely. Forecast the costs, survey the options, and apply for any aid packages for which your student may qualify.
That’s the consensus of education and financial experts, who advise parents that doing the necessary legwork up front can make a big difference down the road – for you and your children.
The lingering effects of the 2007-09 recession continue to impact state budgets, hitting especially hard. That directly impacts fees at public universities, where average tuition increased 15 percent nationwide from 2008 to 2010, and as much as 40 percent in California, Arizona and elsewhere.
There’s been a corresponding jump in aggregate student loan debt, which pushed past the $1 trillion mark for the first time in March 2012. The average balance of those carrying student loans: $24,301, according to the Federal Reserve Bank of New York.
The good news is, there’s an array options for families and students seeking financial aid. These include Pell Grants geared toward lower-income families, Stafford Loans with interest rates between 3.4 percent and 6.8 percent, plus scholarships and grants from the schools themselves.
The last category is where things can get tricky.
The first step is to determine how much a given school may provide in grants or other aid. Most colleges offer free online calculators, which project your expenses for tuition, room and board and class fees, then subtract any aid your student may earn, for an estimated net cost.
These calculators sometimes supply pleasant surprises. For instance, you may find it costs less to attend a private institution – many of which dole out aid quite generously – vs. a public college where less (if any) help is available.
You’ll also fill out a Free Application for Federal Student Aid, used by the government and many colleges to assess one’s eligibility for assistance. This is a crucial step. A family’s tax filings for the year prior to their student’s enrollment (the “base income year”) is the measuring stick for eligibility. That’s why many experts, including finaid.org publisher Mark Kantrowitz, recommend intentionally (and legally) lowering a family’s earnings for the base year.
For example, let’s say you’ll be shipping off your eldest in fall 2014; a lower income for 2013 will boost your chances of landing financial aid. Tactics include cashing in capital gains before January 1 of your base year, deferring stock or property sales until a later year or, for business owners, reducing your own salary while staying within IRS parameters for a “fair wage.”
Leave No Stone Unturned
Never assume your bright and gifted youngster will earn a scholarship to a particular school. Some middle-tier colleges shy away from offering aid to top students they believe will enroll elsewhere, notes former financial aid officer Alex Bickford.
On the other hand, affluent families often assume their income level is a disqualifier and dismiss the application process altogether. In fact, many upper-income students are eligible for assistance, however small.
Given the alternatives – paying hefty tuition out of pocket or piling up a mountain of debt – every little bit helps.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].