Should colleges ‘stop including assets when determining eligibility’ for financial aid?

by Grace

Mark Kantrowitz recommends that eligibility for college financial aid be based on income alone, thus disregarding assets.  His main arguments for this idea are that it would simplify the process and it would prevent families from becoming “discouraged about saving and making plans for the future”. 

Does this proposal make sense?

While simplification is a laudable goal, it should not be the reason to allow families to become eligible for financial aid even while sitting on large balances of untouched assets.  And although the current system might seem to reward spenders and punish savers, I doubt this proposal would cause many of these spenders to suddenly mend their profligate ways, depriving themselves of  vacations and other luxuries to build up their bank accounts.

… Assets are as much a part of a family’s ability to pay as is income. They most certainly should be counted.

The college financial aid system is indeed complicated and unfair in many ways, but ignoring assets in determining financial need would be step backward in trying to reform it.

Related:  This proposal to pay for college would make it too easy to cheat the system (Cost of College)

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5 Comments to “Should colleges ‘stop including assets when determining eligibility’ for financial aid?”

  1. As one of the “savers” who has put aside 10% of pre-tax income every year since my son was born for his college education, I am a little irritated that people with more income over that time who spent profligately on cars and vacations are given handouts. I’m all in favor of helping the poor, but that’s different from giving handouts to the spendthrifts.

    I don’t think that assets should be ignored (those who inherited millions should be expected to spend them), but I do think that current and recent income should have more weight.

  2. As you probably know, income does carry more weight in the way calculations are done now. Parent’s income is assessed at about 20-25% and assets at 3-6%, depending on methods used. Some assets, like qualified retirement accounts, are excluded completely. IMO Kantrowitz’s recommendation is highly unlikely to to be adopted.

  3. I am not sure that I have an opinion, but I do think counting assets can cause some real weirdness in the way financial aid is calculated. Years ago, when I was in college, I worked in a university financial aid office. My job was mainly to research grant opportunities for grad students so I did not see too much of the way financial aid was actually awarded, But sometimes I got pressed into filing letters, and I would read them. I remember one from a potential student pleading her case – evidently her family owned property in the Phillipines which was part of the aid calculations. She pointed out in her letter, though, that the land was on some island held by Communist rebels and was no longer in her family’s control. I am sure some financial aid officer had to waste brain cells over that conundrum. Eliminating assets would certainly make things simpler.

  4. As I learn more about financial aid and EFC, I am loosening up the purse strings and allowing my family more ‘indulgences,’ such as travel, because it seems to me that making sacrifices to save for my kids’ college educations will be penalized.

    I think a better means test than assets would be income history, perhaps with some allowance for extenuating circumstances (e.g., large medical bills). If you take two families with similar income histories, and one has saved a lot more than the other, I don’t see why, absent extenuating circumstances, the saving family should be punished for saving.

  5. “it seems to me that making sacrifices to save for my kids’ college educations will be penalized”

    That line of thinking is often misguided. On balance it may lead to little if any extra financial aid, especially for higher-income families. And the financial “aid” offer may well be in the form of a loan.

    The income history consideration is a big one for many families. Since the process uses a snapshot of a family’s financial situation, it sometimes misses the many previous years where income may have been quite low compared to the present.

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