by Robyn Stewart, former financial aid officer at College of the Holy Cross
Spend 10 minutes speaking with the parent of a high school senior, and I guarantee that I will spend some time dispelling some halftruths that have emerged from today’s college financing process. Anecdotal stories – you know the thing you heard that happened to your neighbor’s son’s friend’s cousin – all seem to have these magical happy endings that we understandably want to replicate.
Here are some top financial aid chestnuts that walk the fine line between myth and reality.
“Students can walk into a bank and get a student loan.”
Students may be able to borrow loans from the federal government, the state, or private/alternative lenders, though generally only federal loans are issued directly in the student’s name. Today, the reality is that students can apply for a private/alternative loan through the bank, but most lenders will require a student to co-borrow the loan with a parent or someone who demonstrates a strong credit history.
“I will get more financial aid if I pay off my mortgage.”
Depending on where your child applies to school, the question of how much home equity you have may never come up, as the FAFSA financial aid application does not ask you to report the equity in your home. At colleges that just use the FAFSA, as well as a number of other colleges that cap the amount of home equity used in the aid calculation at 120%, 250%, or another multiple of parental income, using extra cash to pay down a mortgage may be an effective strategy to shelter assets from the financial aid process. Many private colleges, however, consider money in your house to be no different than money in the bank, and at these schools, paying down the mortgage won’t increase aid eligibility. Note also that cash invested in your home is not as accessible to pay the tuition bill with, so plan carefully before tying up funds needed for college payments.
“You can get more money if multiple children attend the same school.”
Financial aid eligibility is calculated through a formula, but schools have free reign when choosing to award their own funds. Some colleges do offer sibling discounts, which can range from a flat grant to a 50% reduction in tuition, but these discounts are not offered across the board If you can’t find information about sibling benefits on a school’s website, it certainly pays to ask.
“I don’t have to report my income on my child’s applications if I don’t claim her on my tax return for two years in a row.”
Families who hope their self-supporting student will bring home the financial aid bacon need to consider another step. Is the student independent for financial aid purposes—a standard that bears no relation to tax dependency? To be considered independent by the Financial Aid Office, an undergraduate student must be 24 years old, married, have children of their own, be a veteran, or meet other rarer standards. So while some students truly do not need to report parental information on their aid applications, those situations are relatively uncommon and have nothing to do with whether or not you claim your child on your tax return.
The great number and variety of rumors out there reinforces the fact that the financial aid process is not 100% objective. One student one year at one institution may be offered something that a student with an identical situation would not be offered in a different year or at a different school. Negotiating is also a real factor in some outcomes, and your neighbor’s son’s friend’s cousin may have deftly worked a group of offers from competing schools to end up happily ever after, so never hesitate to ask for more.