1. Start Early. Nancy Corrigan, founder of Beacon College Funding Solutions, Inc. of San Francisco, and Dan Evertsz, owner of College Money Pros of San Ramon, both say that the best way to prepare for college expenses is to start early. But if you didn’t begin when your child was just a fuzzy image in an ultrasound, starting by middle school can be soon enough.
Some families still delay, thinking they can’t plan and save if they don’t know whether the child will attend the local California State University or an Ivy League university 3,000 miles away. Corrigan tells these procrastinators to keep in mind that, over four years, even the state college is going to reach $100,000.
"It doesn’t matter what school little Johnny or Susie goes to," Corrigan says. "The parents will still have to write checks."
The first step in raising the right amount is to get an estimate of your expected family contribution (EFC), or how much you can afford to pay for college. The College Board's website has a "net price calculator," as do university websites.
"Get a ballpark idea of whether you’ll need to come up with around $20k or $50k per year by using calculators offered by both a public and a private school that your child might attend," Corrigan says.
After you input your income and assets, the calculators use a formula to measure your EFC for that school. (If your student is still years away from college, add three to four percent inflation per year.)
2. 2. Put the financial tools in place. Unless you've got the money sitting in the bank, it's time to explore various financial tools for providing your expected family contribution. Many options are available. They range from contributing over several years to a Section 529, a tax-advantaged investment that can be used for higher education, to refinancing or taking out a home equity loan. Home equity loans can sometimes come with lower rates than student loans, but Corrigan cautions.
While many financial advisors promote 529s, Corrigan says "there are other, perhaps better tools." Parents may want to consult an advisor specializing in college funding to find what works best for them.
The Heintz family of San Mateo turned to Corrigan and Beacon College Funding for help after finding that the savings accounts they opened at the births of each of their three children had grown very little by the time the eldest was entering college.
With Corrigan’s guidance, they were able to use home equity funds toward a financial tool that allowed them to cover their college costs even though they didn’t qualify for any need-based aid, Jon Heintz says. Corrigan says families who use home equity must make it accessible in a way that doesn’t backfire on them in the financial aid process. The plan is working for the Heintzes: the eldest graduated in May from University of California, Berkeley, the middle child is at a small private college and the youngest will be able to go wherever he finds a good fit.
To receive more need-based aid, some parents may be able to minimize their EFC by putting money into retirement funds, which aren’t considered in the EFC. But parents who try to reduce their EFC by lowering their cash and investment accounts by paying off mortgages and car loans will find the effort is often wasted, says Evertsz of College Planning Pros.
When families fill out the College Scholarship Service Profile (CSS Profile) for aid from specific colleges, they typically need to provide two years of financial records as well as "invasive" information, Evertsz says, on things like home equity and car make and model. So if you just paid off a Lamborghini, your child’s unlikely to get much need-based aid, regardless of what’s in your bank account.&pagebreaking&Another mistake some parents make is putting some of their assets into their child’s name to save on taxes, Evertsz says. This hurts your chances when colleges determine your financial aid, because they weigh assets in the child’s name more heavily.
Another misstep is relying for financial guidance on high school counselors, who are trained in meeting educational requirements, not finances.
3. Fill out the federal and state college financial aid forms. This step is critical even if you think that, at today’s frightening costs, you can never afford college. Federal and state grants and need-based aid from private colleges actually are ample for low-income families, Evertsz says.
Also fill out the Free Application for Federal Student Aid (FAFSA) and Cal grant applications (if attending an in-state college) if you think your income is too high to get need-based aid. When completing the FAFSA, you’ll submit income and other details, such as how many kids you have in college to determine your official EFC. Type carefully, Evertsz says. Errors can result in lost financial aid.
Middle-class families with income up to $130,000 and even those who own homes are usually eligible for some form of aid, according to College Money Pros’ website.
"I've run across many families that were eligible … but never completed the FAFSA," Evertsz says. "Self-employed parents are usually always eligible, but rely on their gross income as a guideline. Wrong! Your Adjusted Gross Income is the number the federal government uses to determine your EFC."
And even if your income exceeds $150,000, submit the FAFSA, Evertsz and Corrigan urge. Your finances may be rosy now, but things can change over your child’s college career due to a job loss, illness or even death in the family.
Also, most schools require that students complete the FAFSA to be eligible even for non-need based (merit or academic) scholarships.
4. Apply to schools that give more aid. Don’t automatically avoid private colleges with high tuition. Many of these schools have large endowment funds and offer $15,000 to $20,000 in tuition discounts, College Money Pros’ website states.
The tuition discount rate – the amount of the advertised tuition that the college covers – for freshmen in 2012-2013 was a considerable 44.8 percent, according to a survey of 400 private, nonprofit colleges by the National Association of College and University Business Officers. The rate has been on "a continual upswing" for years, the organization states.
Some private colleges specifically want to draw California students to increase their geographic diversity. They offer tuition discounts that may bring the cost of a private college close to that of a public in-state university, Evertsz says. To find schools with high discount rates, search for "best value" or "schools with most merit aid" in U.S. News & World Report's college rankings.
It’s important to be aware, though, that much of the "financial aid" offered by both private and public colleges and advertised on their websites is not in the form of free money, Corrigan and Evertsz say. A large portion of aid money is in the form of loans. And while some may be federal loans with fairly low interest rates, such as the Stafford Loan with a current rate of 3.86 percent, others are private loans that can come with considerably higher rates and fees.
As a result, students are taking on more debt than ever before. The College Board reports that 57 percent of public college students and 65 percent of private, non-profit college students graduated with education debt in 2011-2012. Those public grads borrowed an average of $25,000 and the private grads $29,900 – more than 20 percent more than grads from 10 years earlier who had education debt. To limit this burden, you’ll want your student to earn as much merit aid as possible.&pagebreaking&5. Apply to schools where your teen may realistically earn a merit scholarship. Keep in mind, that unless she has a perfect SAT score, your student probably won’t get a full academic scholarship to the Harvards and Stanfords of the world. However, a slightly less perfect student might do so at a highly ranked, lesser known school.
Aim for colleges where your child’s scores and grade point average (GPA) would put him in the top 25 percent of school’s students, Corrigan says. Also, check college websites for general and specific department scholarships. Remember, your child won’t get a merit scholarship if it’s a long shot that he’ll even be admitted based on his test scores and GPA.
College average scores can be found on the school websites, as well as at www.collegelists.pbworks.com. (Search for SAT ranges.)
6. Make sure the student picks a school and a major that fit him.
Students should consider everything from class and school size to the setting to the distance from home before deciding if a school is right for him, Corrigan and Evertsz say. Choose wrong and your student may drop out before graduation, wasting your money.
Visit any college before accepting. Google it thoroughly and use a "school fit" calculator like one offered by www.Princeton Review.com. Even a wrong major can be costly.
"If a student gives up a year of school because he changes his major or doesn’t finish his studies, that’s a big hole (financially)," Corrigan says. "One of the best ways to keep costs down is to get the right fit."
The right fit can also mean more aid because the school may want the student more, Evertsz says. And make sure the cost of the education fits the intended career, he adds. If your student’s dream is to be a social worker, journalist or other salary-challenged professional, it might not make sense to cough up an Ivy League tuition.
7. Appeal if the financial aid is too low. If your child gets an aid package from the college, but it is lower than it should be based on your EFC, you should appeal, Corrigan says.
"Colleges will often offer just enough financial aid to get the student in the door and not a dollar more," she says. "They’re counting on the fact that if they low-ball you by $1,500, you’ll come up with the difference."
Write a letter appealing the college’s offer. The appeals process is also an opportunity to explain special circumstances that require you to receive more aid. At this time, some private schools will even entertain requests to increase the aid package due to high cost of living in your area (i.e. San Francisco housing costs).
College Money Pros says on its website that for this job, parents might want to hire a financial advisor with a track record of winning appeals.&pagebreaking&8. Win a scholarship. Check with your high school website and guidance office, which should have a list of charity scholarship contests. You can also use free online scholarship services such as scholarship.com, which provides a filter to help you narrow down scholarships or which you may be eligible.
Keep in mind that private scholarships are often very specific – for example, a few current contests target students who are tall, are Slovenian or are female engineers – and the prizes tend to be small, in the $500 to $5,000 range. Private scholarships make up only one percent of the money available to help you pay for your child’s college education, Evertsz says, so they aren’t worth a huge chunk of your aid-seeking efforts. Also, be sure to speak to the college’s financial aid personnel to make sure an outside scholarship won’t work against you when the college offers you financial aid.
For Catherine Hunter, who agonized over paying for college three years ago, it was a combination of several of these techniques that allowed her to fund her kids’ education.
Hunter got help from Corrigan, who took care of filling out the daunting forms. More importantly, Corrigan helped her set up and contribute to a decent retirement fund for herself, which reduced her assets and increased her family’s eligibility for aid.
Corrigan also recommended that Hunter’s twins look for colleges targeting students from California with their academic statistics, and when their financial aid packages still came up short, she appealed on their behalf.
The girls ultimately were able to attend their dream colleges, Lewis & Clark College in Portland and Dickinson College in Pennsylvania, at discounts of around 35 percent of the overall cost, which was a price their mom could afford.
For families like Hunter’s, getting a firm grasp of the financial aid process is essential, but people at any economic level can benefit from learning about it.
"Financial aid should go the families who deserve it the most, but in reality it goes to the families who know the most," Corrigan says. "The schools are kind of hoping you won’t learn how to play this game."
Angela Geiser is the mother of two teens and editor of Teen Focus.
Beacon College Funding Solutions, Inc. of San Francisco, founded by chartered financial analyst Nancy Corrigan, is at www.beaconcollegefunding.com.
College Money Pros, owned by certified college planning specialist Dan Evertsz, is at collegemoneypros.com.
Terms You Should Know
Cal Grant – Gift aid for California students who meet income and GPA requirements. Submit the FAFSA and two forms to Cal Grants by March 2 to maximize awards. www.calgrants.org.
EFC – The Expected Family Contribution is how much a family should be able to pay for college based on a formula evaluating the income and assets they report on the FAFSA.
FAFSA – Submitting the Free Application for Federal Student Aid is the first step to getting federal or state need-based aid, as well as many merit scholarships. Due June 30, but needed earlier by many colleges. www.fafsa.gov.
Financial Aid – This term includes both free money and loans. Colleges advertising that a high portion of their students receive financial aid are lumping loan recipients into this number.
Middle Class Scholarship – For University of California and California State University students with family incomes up to $150,000. www.csac.ca.gov
Pell Grant – Federal gift aid for undergrad students who need it based on their EFC.