Posts tagged ‘Student financial aid in the United States’

November 12, 2013

This proposal to pay for college would make it too easy to cheat the system

by Grace

Among the Creative Solutions to Pay for College proposed by sociology professors Laura Hamilton and Elizabeth A. Armstrong is a radical change in defining the notorious Expected Family Contribution (EFC).  This idea has some merit, but would it let slacker parents slough off their financial responsibilities?

2. Use different measures of dependency. Need-based student aid and loan amounts are typically calculated using the federal government’s estimate for “expected family contribution” — which may not bear any relation to the parental assistance students actually receive. Undergraduate students are considered dependents unless they have children or are: over 23, married, a member of the military, an orphan, a ward of the court, an emancipated minor, homeless or at risk of becoming homeless. Dependents must report parental income on the Free Application for Federal Student Aid, and it is considered in calculating the expected family contribution. This poses a severe hardship for students who are financially independent. A measurement based on student reports of actual expected contributions would alleviate this burden. Given the financial constraints families face, there would be temptation to game the system. However, students and parents could sign a legally binding document stating their financial relationship (if any), and proof may be required to show financial independence through individual earnings in the first year of college.

This proposal addresses the frustrations felt by those unlucky students whose parents, even if they could afford it, will not financially support their children’s college education.  Yet for purposes of qualifying for financial aid, these students are stuck unless they fit into one of the narrow categories listed above.  For example, in cases of deadbeat dads, middle-income families deep in debt, or prosperous but anti-education parents, the children may not qualify for aid under current rules.  Often these children are essentially self-supporting, but cannot be considered independent in the application process.

Too many opportunities to game the system

While this idea seems reasonable in some respects, it also seems ripe for abuse.  Legal documents and tax records may screen out some would-be moochers, but loopholes would allow many to qualify for money.  Business owners in particular could easily set their kids up with “jobs” that would make them appear self-supporting.  And it’s easy to imagine a scenario where a “financially independent” student would regularly receive generous cash gifts and other  goodies from his parents while remaining eligible to receive financial aid.

No thanks.  The rules as they stand are onerous and imperfect, but I don’t believe the suggested solution is a better option.

Related:  Why does the EFC come as a shock to many parents? (Cost of College)

October 23, 2013

Ten questions to ask about college financial aid

by Grace

Questions to Ask College Financial Aid Administrators

From Fastweb’s Quick Reference Guide to Evaluating Financial Aid Award Letters:

The following questions can have a significant impact on college costs, especially the out-of-pocket cost, and on evaluating the financial aid award letter.

  1. Does the college meet the full demonstrated financial need for all four years, or is there unmet need (a gap)?
  2. How much on average do the college costs increase per year?
  3. Does the college practice front-loading of grants? Can students expect to receive a similar amount of grants in subsequent years, assuming their financial circumstances are similar? If the college practices front-loading of grants, how much will the grants change each year?
  4. What is the college’s outside scholarship policy? How does the college reduce the need-based financial aid package when a student wins a private scholarship? Does the scholarship reduce the loan and work burden (and unmet need, if any) or does it replace the college’s grants and scholarships?
  5. What are the residency requirements for in-state public college tuition?
  6. How many hours will I need to work to earn the full work-study award I’ve been offered? How much will I be paid per hour? Are work-study jobs readily available, or are they hard to get?
  7. What are the requirements for keeping my grants and scholarships in future years? Do I need to maintain a minimum grade point average? Do I need to take a particular number of units? Do I need to participate in any special activities such as community service?
  8. How does one appeal for more financial aid if the financial aid award is insufficient or the family’s financial circumstances have changed?
  9. What percentage of first-time, full-time students graduate within a normal timeframe? How many years, on average, does it take to earn the degree?
  10. What percentage of students graduate with debt and what is the average cumulative debt at graduation?

These questions highlight some of the most critical issues that should be considered in determining how the net cost of college will be affected by financial aid.

Here’s a suggestion on how a family can proceed with educating themselves about a particular college’s costs.

  1. Run a school’s Net Price Calculator using the family’s specific financial information.
  2. Review the school website to find answers to the ten questions listed above.
  3. Contact the school’s financial aid administrator to get answers not found on the website.

Going through this process will uncover key financial information, providing a good sense of that school’s affordability.

Related:

October 21, 2013

Even with a full scholarship there’s no free lunch

by Grace

Even college students awarded a full scholarship sometimes get socked with thousands of dollars in bills.

In reality, a full college scholarship does not usually cover the full cost of attendance.  Most schools require a student to contribute at least a few thousand dollars, either from employment income or from a loan.

Colleges usually require a “minimum student contribution” when calculating financial aid.  They want students to have some skin in the game.

… This payment is often referred to as a “minimum student contribution,” which is a flat payment typically between $1,500 and $4,000 a year. The dollar amount is usually the cheapest for freshmen and the most expensive for seniors. Some schools refer to it as a “summer earnings expectation,” saying that they expect their students to work during the summer and to contribute a certain dollar amount from that income to their education costs….

… schools are encouraged to charge students. For years, the College Board has suggested a minimum student contribution, and specified a recommended dollar amount — currently $1,800 for first-year students and $2,450 for dependent upperclassmen—for many colleges to charge….

Outside scholarships are not usually allowed to replace the student contribution.

When a student gets private scholarships—from a corporation or community group, say—some schools will actually scale back their own aid offering. In other cases, even when aid is enough to cover every penny of financial need, some schools require students to still pay a portion of the college bill out of their own pockets….

Harsh impact on low-income students who are awarded full-need financial aid

The policy is a major hardship for students who can barely earn this amount or who don’t have family to help them cover this cost. When students cannot pay, many colleges suggest they sign up for student loans.

Critics say the policy also underscores how the system is stacked against poorer students: Most colleges will accept a check from any other external source, like a student’s wealthy uncle, for this required payment, but they will not allow a private scholarship to pay this bill, even though the end result for the schools is that they still get paid the same amount. For some students who receive scholarships through the UNCF’s Gates Millennium Scholars program, these contribution requirements equal 5% to 22% of their families’ annual income, says Larry Griffith, senior vice president at the UNCF.

Low-income students may scramble to pay the required student contribution.

Beatriz Barros, a freshman at Cornell, thought her family would only be required to pay $1,400 for her college bills, which was the EFC figure the federal government had determined. But shortly before the school year began, Barros says, Cornell sent her a bill, which showed that her family would be required to pay $5,500 for the year and she would have to pay a separate $2,600 for her summer earnings expectation. Meanwhile, Barros had been awarded a scholarship from the Gates Millennium Scholars program that was large enough to cover her summer earnings expectation, but she says the school’s financial aid office declined to accept it, saying it was a required payment that she would have to make on her own. To pay for her and her family’s extra costs, Barros signed up for federal student loans, abstained from flying home for Thanksgiving, and cut back on her meal plan. “I definitely didn’t expect the bill to be that large—you hear about getting the Gates scholarship and you say, ‘Cool, I don’t have to graduate in debt.’ And then you find out you won’t get to do that and it’s a bit heartbreaking,” she says.

These students sometimes have to forego non-paid internships in order to get a paying summer job.  This puts them at a disadvantage when it comes time to find a job after graduation.

October 14, 2013

Rich students get more college merit aid

by Grace

The richer you are, the higher your chances are of receiving merit aid.

Stephen Burd writes in Higher Ed Watch:

Newly-released data by the U.S. Department of Education’s National Center for Education Statistics (NCES) show that a student’s chances of receiving merit aid increases as his or her family’s income rises. In fact, students from families making more than $250,000 a year are more likely to receive merit aid than those making less than half of that.

20131009.RichStudentsMerit2

Source: Higher Ed Watch

Overall, one in five students with family incomes of over $250,000 a year obtained merit aid from their colleges in the 2011-12 academic year. That’s compared to about one in seven students from families that make between $30,000 and $65,000, and one in six from families with annual incomes between $65,000 and $105,000.

Using merit aid to compete for students who can afford to pay ‘full freight’

These results are not entirely surprising. As I’ve written in the past, four-year colleges, both public and private, are increasingly using their institutional aid dollars to compete for students who can otherwise pay full freight. This strategy has been particularly appealing to public colleges and universities of late as a way to make up for declining support from their states.

Related:

October 2, 2013

Merit-based college financial aid criticized as ‘Freebies for the Rich’

by Grace

In the New York Times, Catherine Rampell argues against the trend of state universities shifting more of their financial aid from need-based to merit-based.

‘Freebies for the Rich’

Over the years, many state-university systems — and even states themselves — have shifted more of their financial aid away from students who need it toward those whose résumés merit it. The share of state aid that’s not based on need has nearly tripled in the last two decades, to 29 percent per full-time student in 2010-11. The stated rationale, of course, is that merit scholarships motivate high-school achievement and keep talented students in state. The consequence, however, is that more aid is helping kids who need it less. Merit metrics like SAT scores tend to closely correlate with family income; about 1 in 5 students from households with income over $250,000 receives merit aid from his or her school. For families making less than $30,000, it’s 1 in 10.

Schools are doing this because the math works out for them.

Raising the tuition and then offering a 25 percent scholarship to four wealthier kids who might otherwise have gone to private school generates more revenue than giving a free ride to one who truly needs it. Incidentally, enticing these students also helps boost a school’s rankings….

According to Rampell, it’s bad for the economy, bad for the merit aid recipients, and bad for needy students.

This is obviously troubling for the students who need help, but it is also bad for the state economies that public colleges are supported by and are supposed to help advance. While merit aid sounds like an effective way to combat brain drain, there is no conclusive evidence that it works. One recent study by economists at Cornell and the University of Chicago found that “nearly all” of the spending on state merit-based scholarships had little effect on keeping students in state after they graduated. Merit aid may not even be a good deal for those who earn it. A recent study by researchers at Harvard Kennedy School looked at a scholarship program in Massachusetts in which high-scoring students get tuition waivers at in-state public colleges. It found that taking the scholarship actually reduced a student’s likelihood of graduating because they ended up at a school with a completion rate lower than one of the other schools they could have gone to. Peer effects matter, it turns out. The long-term costs of going to school among those who are more likely to drop out could outweigh the upfront benefits of a cheap education.

But if the high achievers did not accept merit aid, where would they go to college?  I don’t think it can be assumed that they could afford the higher-ranked, higher-priced schools.

Financial aid, however, has a hugely positive impact on whether low-income students graduate. Among needier kids, the six-year graduation rate is 45 percent when grants cover under a quarter of college costs versus 68 percent when they cover more than three-quarters, according to Mark Kantrowitz, the publisher at Edvisors.com, a network of college-planning Web sites. If you look at comparable stats for high-income students, the amount of aid makes almost no difference. Their graduation rates are around 78 percent either way.

This NYT editorial is part of the ongoing debate on the trend of awarding increasingly more college financial aid based on merit, with some college presidents taking steps to reverse the trend amid criticism that merit aid is unfair.

Related:  Increasing college merit aid decreases enrollment of minority and low-income students (Cost of College)

September 2, 2013

College Net Price Calculators are not accurate for business owners

by Grace

A word to the wise –

Net price calculators are not accurate for business owners and other situations.

Here’s the warning from Bowdoin College:

For some families (e.g. divorces/separated, business owners) using the Net Price Calculator will be less reliable because of the complexity of their family financial circumstances. The calculator is not intended for international families….

The general message is that if your family’s financial circumstances deviate from a “typical” situation, the simplified NPC calculations are less likely to predict your cost to attend college.  In the case of business owners, schools usually will ask for additional financial information, which often results in revenue that had been netted out being added back in for the purpose of determining expected family contribution to college costs.

Net Price Calculators have been required since 2011.

In accordance with the Higher Education Act of 1965 (HEA), as amended, as of October 29, 2011 each postsecondary institution that participates in the Title IV federal student aid programs is required to post a net price calculator on its Web site that uses institutional data to provide estimated net price information to current and prospective students and their families based on a student’s individual circumstances. This calculator should allow students to calculate an estimated net price of attendance at an institution (defined as cost of attendance minus grant and scholarship aid) based on what similar students paid in a previous year. The net price calculator is required for all Title IV institutions that enroll full-time, first-time degree- or certificate-seeking undergraduate students.

Related:

June 10, 2013

Preferential packaging – college financial aid as a recruiting tool

by Grace

Preferential packaging of financial aid is commonly used by private colleges and universities.  Because schools are not transparent about this strategy, many families are ignorant of how it works.  Muhlenberg College is unusually open about explaining this practice.

Preferential packaging means, simply, that the students a college would most like to enroll will receive the most advantageous financial aid packages.

There are three basic types of financial aid (FA):  grants, loans, and work.

A preferential financial aid package includes a far greater percentage of grant aid than self-help (loans and work). Because they have discretion over how much grant aid they choose to award a student, a college can award a bigger grant to a student they would really like to enroll….

Willamette University also is exceptionally forthright about its preferential packaging.

For students with demonstrated financial need, the percentage of need that is met with “gift-aid” (scholarships and grants from all sources) will also reflect the students’ academic standing within our admitted applicant pool. In other words, the stronger the student, the greater the scholarship award is likely to be.

Let’s look at an example from a CollegeConfidential post.

In this case the college’s Cost of Attendance (COA) is $40,000, and two applicants have the same financial need but quite different academic credentials.

Student A
ACT 33
GPA 4.0
EFC = $7k
Student B
ACT 24
GPA 3.2
EFC = $7k

Student A is more attractive to the college because his stats would improve the school’s stats.  Perhaps Student A is also an Underrepresented Minority (URM), another desirable factor.  Both students will be offered $10,000 in FA, but Student A will receive a preferential package that does not include a loan.

Financial Aid Offered
Student A:  $8,000 grant; $2,000 work-study – Total = $10,000
Student B:  $3,000 grant; $5,000 loan; $2,000 work-study – Total = $10,000

Note that these awards are technically “need-based”, but in fact do take merit into consideration.  If it is the official policy of this college only to offer FA based on need and not on merit, another student with the highest of academic credentials but lacking any financial need (EFC = COA) would receive nothing.

What it means to applicants

  • Students seeking to maximize financial aid should apply to schools where their statistics place them in the upper third of the applicant pool.
  • Students with no financial need are shut out of many merit awards that include a need component.

Related:

May 21, 2013

Getting answers to essential questions about a college’s financial aid policies

by Grace

College financial aid policies can vary significantly, so be sure to check with each school.

The CollegeBoard suggests an interested student or parent schedule a phone meeting or an interview with a member of the financial aid staff” to get answers to any questions that are not answered by information on the college website.

A list of 12 questions to get you started on gathering information is provided.  In my experience, the answers to most of these questions can usually be found on college websites, so be sure to check there before you make a call.

A dozen questions to get you started:

  1. What’s the average total cost — including tuition and fees, books and supplies, room and board, travel, and other personal expenses — for the first year
  2. How much have your costs increased over the last three years?
  3. Does financial need have an effect on admission decisions?
  4. What is the priority deadline to apply for financial aid and when am I notified about financial aid award decisions?
  5. How is financial aid affected if I apply under an early decision or early action program?
  6. Does the college offer need-based and merit-based financial aid?
  7. Are there scholarships available that aren’t based on financial need and do I need to complete a separate application for them?
  8. If the financial aid package the college offers isn’t enough, are there any conditions under which it can be reconsidered, such as changes in my family’s financial situation or my enrollment status (or that of a family member)?
  9. How does the aid package change from year to year?
  10. What are the terms of the programs included in the aid package?
  11. What are the academic requirements or other conditions for the renewal of financial aid, including scholarships?
  12. When can I expect to receive bills from the college and is there an option to spread the yearly payment over equal monthly installments?

If you want to be super organized, you can create a spreadsheet with all relevant data.

May 7, 2013

‘Rich’ families get a sweet financial aid deal at the most selective universities

by Grace

For students who win the college admissions lottery and get in to the most selective universities, high income may not be a barrier to receiving financial aid.  Here are some examples.

HARVARD

2011-12 School Year:  About 240 families earning $180,000-200,00 received financial aid.

Beginning with the Class of 2016, families with incomes between $65,000 and $150,000 will contribute from zero to ten percent of income, and those with incomes above $150,000 will be asked to pay proportionately more than 10%, based on their individual circumstances. Families at all income levels who have significant assets will continue to pay more than those in less fortunate circumstances.

PRINCETON

2011-12 School Year:  99% of families earning $180,000-200,000 who applied for financial aid received grants that averaged $23,600.

Applicants receive aid based on their families’ financial need. We do not use income cutoffs when determining whether to award aid.  Any student whose family feels unable to afford the full cost of attendance is encouraged to apply for aid.

YALE

2011-12 School Year:  99% of families earning $150-200,00 who applied for financial aid were approved.  Grants for those 505 families averaged $26,500 each.

  • Families whose total gross income is less than $65,000 are not expected to make any financial contribution towards their child’s Yale education. 100% of the student’s total cost of attendance will be financed with a Yale Financial Aid Award.
  • Families earning between $65,000 and $200,000 (with typical assets) annually contribute a percentage of their yearly income towards their child’s Yale education, on a sliding scale that begins at 1% just above $65,000 and moves toward 20% at the $200,000 level.
  • There is no strict income cutoff for financial aid awards. Many families with over $200,000 in annual income receive need-based aid from Yale.

UNIVERSITY OF CHICAGO

2012-13 School Year:  59% of families with incomes above $120,000 who applied received financial aid.

The average University of Chicago aid applicant receives $37,500 in scholarships each year.

$160,000 income puts you in the top 10% of families in the United States.

Related:

April 19, 2013

In their college search, students need to look beyond ‘average net price’

by Grace

Even with its flaws, the Net Price Calculator (NPC) offers low-income students a better indication of college affordability than the College Scorecard does.  However, sometimes finding a college’s NPC is not easy.

Limited value in using a college’s average net price

Because it uses average net prices as a measure of affordability, the recently introduced College Scorecard may discourage low-income students from applying to high-priced schools.  Low-income students do not pay “average” prices.  For that matter, high-income students don’t either.

There’s just one problem: no student is average.

Consider a low-income applicant to the University of Pennsylvania, a school with a high sticker price. At Penn, a full-price student pays $59,600 (including tuition, room & board, and other fees) and a low-income student with a full scholarship pays $0. The average net price across these two students is $29,800. (As it happens, Penn’s reported average net price is $20,592.) Just like high sticker prices, high average net price can mislead students from modest circumstances looking for affordable college options. Many colleges – particularly prestigious schools with high sticker prices – are committed to building socioeconomically diverse student bodies. At such schools, students’ individualized net prices can vary significantly depending on their financial circumstances.

NPC figures offer a better measure of affordability.

… Like the College Scorecard, NPCs offer key financial information to students and families prior to application and matriculation. The College Board’s 2012 study revealed that more than half of college-bound seniors from lower-income and middle-income families still rule out colleges on the basis of sticker price, but with the advent of NPCs, students from all backgrounds can identify affordable college options before they decide where to apply.

… Instead of discussing financial aid after students have received acceptance letters in senior spring, counselors can help students build application lists in junior spring that take financial aid into account. With the Scorecard’s average net prices, high schools students are left with yet another one-size-fits-all ranking of affordability; in short, it is not much better than the starting “sticker price.”

20130418.COCNPCvsAverageNetPrice1

For low-income students like Cristina, the College Scorecard misses the mark – sometimes by a big margin. As with sticker prices, these average net prices can indicate to low-income students that they will find neither financial support nor a warm welcome at selective schools.

But NRC calculators are often not user friendly.

A report issued by The Institute for College Access and Success (TICAS) in October 2012 asserted that “net-price calculators are still not reliably easy for prospective college students and their families to find, use, and compare,” noting (among other issues) that many schools post NPCs on obscure web pages.

Although NPC links are included in both the College Scorecard and the Department of Education’s College Navigator, it turns out that many do not connect to the right location.

A solution:  College Abacus will soon have a consolidated set of links to all NPCs for U.S. colleges and universities.

At College Abacus, we are closing the gap between legislation – and its goals – and the actual needs of students, parents, and counselors around the United States. We are taking on the task of aggregating the net price calculators into a single, student-friendly tool. With the help of a grant provided by the Gates Foundation’s College Knowledge Challenge, we expect College Abacus to expand from its current group of 4,000+ schools to include all US colleges and universities by September 2013.

Related:  ‘Tips for Using Net Price Calculators’ (Cost of College)

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