visiting colleges

Spend 10 minutes speaking with the parent of a high school senior and I guarantee that I will spend some time dispelling some half truths 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 desperately want to replicate.

Here are some top financial aid chestnuts that travel 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. In addition, two dozen specific schools cap the amount of home equity used in the aid calculation at 120% of parental income. The bottom line: if you are eligible for need based financial aid at these schools, then using extra cash to pay down a mortgage may be the way to go.  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 help.

“You can get more money if multiple children attend the same school”

Financial aid eligibility is calculated through a formula, however schools have free reign when choosing to award their own funds. Sometimes parents can get more money when siblings simultaneously attend the same institution. Discounts can range from a flat grant or incentive to a 50% reduction in tuition. 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 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.

 

Written by Robyn Stewart
Robyn Stewart is a member of College Coach’s team of college finance experts. Prior to joining College Coach, she worked as a former financial aid officer at College of the Holy Cross.