Separating Myth From Reality About Student Financial Aid

By John E. Day



There are many misconceptions about college financial aid, often concerning the types of aid available and who qualifies to receive it.

On that note, the U.S. Department of Education and The College Board have identified several myths that mislead students, parents and school counselors alike.



Myth 1: College is just too expensive.

Despite the media hype about rising costs, a college education is more affordable than you may think, especially when you consider that college graduates earn an average of $800,000 more during their careers than high school graduates. The average annual cost of a four-year public school in 2007-08 was just $6,185. There are some expensive schools, but high tuition is not a requirement for a good education.



Myth 2: My income is too high for my child to qualify for aid.

Aid is intended to make a college education available to students in many financial situations. College financial aid administrators often take into account not only income, but also family size, the number of other children in college, and federal and state taxes paid, among other factors. In reality, aid is awarded to many families with incomes they thought would disqualify them.

Remember that money is also awarded on the basis of merit. The largest growth in institutional aid budgets is merit money. That's because colleges are competing locally, regionally and nationally for talented students.

Do not let your assumptions rob your child of attending the college s/he is most interested in. Apply first, and then allow the financial aid offices at each school to offer advice on how to pay the bill.



Myth 3: There is less aid available today than there used to be.

In recent years, the amount of student aid has increased significantly at private colleges, much of it in the form of scholarships and grants. According to The College Board, more than $130 billion of student financial aid is currently available.

In addition to grants, millions of taxpayers benefit from education tax credits or tuition and fee deductions. Also, there are numerous federal, institutional and private student loans available with very low interest rates.



Myth 4: We saved for college, so our child won't qualify for aid.

Having a college nest egg will not disqualify your child from receiving financial assistance. A family's share of college costs is based on a universal calculation called the Estimated Family Contribution (EFC). There are currently two main formulas used to determine the EFC: the Federal Methodology, which is used by the federal government to calculate eligibility for federal aid; and the Institutional Methodology, which is used by many colleges to calculate eligibility for institutional aid programs.

Generally, under the federal formula, up to 5.6% of a parent's assets and 35% of a student's assets are considered available to pay for college. Consequently, planning ahead for college costs through 529 College Savings Plans and Coverdell ESA accounts is a prudent investment strategy.



Myth 5: The financial aid form is too hard to fill out.

Over the years, the Department of Education, with the assistance of student financial aid administrators nationwide, has simplified the Free Application for Federal Student Aid (FAFSA). Applicants who complete the FAFSA online will discover that it is easier to use. Each section has specific directions and once you have completed the form online and submitted it, you have the opportunity to correct any mistakes in your original data.

Your child can obtain assistance on how to complete the FAFSA and other financial aid applications from local colleges, high school counselors and possibly community action organizations. Many colleges and high schools offer free workshops on completing the FAFSA, usually held in late fall or January of the student's senior year. Some state student financial aid organizations offer a toll-free hotline in January to help parents/students complete the FAFSA and to answer general financial aid questions.



Myth 6: Private schools are out of reach.

In many cases, a private college or university may be more affordable than a public institution. Private colleges and universities have more institutional aid to award to students. Also, private colleges will award money to students based on academic merit and financial need in order to attract a diverse student body.

This is not to imply that public colleges are not aggressive in their recruitment and financial aid practices; they are. However, since private colleges have higher tuition costs, applicants may demonstrate more eligibility for financial aid at a private institution than at a public institution.

Nationally, it is estimated that more than 70% of students attending private colleges and universities will demonstrate financial need and will receive aid packages including scholarships, loans and on-campus work opportunities.



Myth 7: Only students with good grades get financial aid.

Although many colleges award merit scholarships based on grade point averages, SAT scores, class ranks, etc., they also consider service to the community and participation in the arts and athletics as other important criteria. More importantly, eligibility for student aid from the federal government and grants from individual colleges are based on the student's financial need, not academic record.



Myth 8: Having a job will hurt my child's academic success.

Over the years, research has continually supported the notion that students who work part-time during the academic year do well academically. The key is not to work too many hours. Students need to develop a time management plan that includes part-time work and on-campus involvement as well as time for academics. Part-time work allows the student to earn money and may provide hands-on experience for a future career.



John E. Day is a financial consultant with LPL Financial Services in Columbia. He can be reached at 410-290-1000, john.day@lpl.com or via www.lpl.com/john.day.