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Top 7 Myths About College Financial Aid

  If you’re the parent or grandparent of a college bound high school student, you may be overlooking substantial financial assistance and tax opportunities and not even know it.  Why? Too often parents become victims of the top 7 myths about college financial aid.

Not understanding the financial assistance or other tax strategies offered today could be costing your family thousands of dollars and a better education for the student.  Paying for college is expensive enough.  Don’t deprive yourself of aid you may qualify for simply because you believe these financial aid myths. You don’t have to be a victim if you have an open mind and are willing to be coached through a complex process.

How do parents become victims? Usually this begins with conversations with family and friends who have the very best of intentions but are either passing along third-hand information about “somebody who knew somebody” who couldn’t get financial aid.  Or it may be based on personal first-hand stories.  Everyone figures they’ll never qualify for aid so there’s no use in either trying to get any or to do anything to lower their college costs.

While such stories are helpful guides they can do permanent damage to a family’s personal bottom line now and in retirement because such advice simply gets people off track, closes their minds to real cost-effective opportunities and ultimately ends up costing them lots more money than they need to spend.

Personally, I’ve got a friend who graduated with me from a top flight public university.  He now has a son attending a private college and flat out said that there’s no way around him paying $1,000 a week for his son’s undergraduate degree.  No way. No how. Not worth listening to figure out a way to lower than costly burden.

While he may not want to listen, I’m sure there are plenty of parents out there who are like me:

  • Don’t have that kind of money despite earning very good six-figure salaries,
  • Don’t want to have bragging rights comparing financial scars earned from paying for college and
  • Don’t want to live on cat food and live in a cardboard box in retirement.

 Top Financial Aid Myths

1. Not enough college financial aid is available.

So not true.  Financial aid comes in many forms. During the 2010-2011 academic year, student financial aid rose to record levels exceeding $154 billion. While less may be available in the form of grants, the fact is that the vast majority of students (over 85%) receive some form of aid – whether in the form of subsidized loans or institutional loans and grants.

       2. Only students with good grades get financial aid.

While there are pots of money for merit-based grants and aid, students don’t need top grades to receive subsidized loans. And many schools offer aid programs to students based on their course of study. In other cases, schools may offer aid as part of a complete package as an incentive to attract a student to enroll and help diversify their student body.

3. You have to be a minority to get financial aid.

Again, not true. Except for specific scholarship opportunities which may be geared to students of a specific background, nationality, or religion, the vast majority of merit-based aid and all need-based loans are color-blind.

4. I won’t need government help because my kid will get scholarship money.

You might. And you might win the lottery or some other windfall like an inheritance. But that doesn’t mean you shouldn’t have a plan in place to properly fund an education and minimize the anxiety and stress. Private scholarships provide a small portion of funding. More than 70% of aid comes from government sources and almost 29% from school endowment funds.

5. I make too much money to qualify for any aid so it’s not worth filing a FAFSA.

 Not likely. Even parents with adjusted gross earnings above $150,000 per year typically qualify for some sort of student financial aid. The aid formulas are based on a number of factors and not just on income. Depending on the age of the parents, tax filing status, and number of children in school among other factors, you may qualify for a lower Expected Family Contribution (EFC) and more financial aid. There are income and asset exemptions which help shield a good portion of both and help a family qualify for more aid. To minimize your EFC and maximize your aid eligibility, you’ll need to put in place a number of different tax, asset and loan strategies ahead of time.  And to close the Gap between total Cost of Attendance and your EFC, you can focus on college selection to find a school that offers aid to attract your student because he/she will help diversify the college population.

6. Guidance counselors are trained to get your kids into colleges.

Their job is to help your student graduate from high school. Period.  While they may be well-intentioned the reality is that these folks are overburdened dealing with more than 300 student assigned to them. And not many are trained in the ins and outs of financial aid, income or asset strategies.  And do you really feel comfortable sharing that sort of stuff with them anyway?  When I was in high school I brought my college applications down to my guidance counselor to review them before sending them in.  I was naive to think he could help even proof read my application much less provide financial guidance because when the acceptance letter showed up for SUMMER SCHOOL and not regular admission I knew I was out of luck.

7. College and University Financial Aid Officers will help.

Unlikely.  While these folks aren’t your enemy, their NUMBER ONE job is to get you to attend the school and pay the bill.  Every student who attends means more direct federal aid to their campus.  Again, these folks are not going to know your specific situation nor have any duty to help you make sure you can even afford this investment in higher education.  Asking how you can get more money for college is sort of like asking the IRS how to pay less in taxes.

It’s been said often about many things in life.  The more you know, the better decisions you can make.  Why rely on second-hand stories from folks who don’t know your particular income, asset or tax situation when you can get proper strategic guidance from qualified college financial planners?

Avoid the myths, file your FAFSA, plan more and spend less.