Paying for College Without Going Broke, 2017 Edition - Princeton Review, Kalman Chany (2016)

Part II. How to Take Control of the Process

Chapter 4. How to Pick Colleges

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How to Pick Colleges—with Financial Aid in Mind

Richard Freedman, a former guidance counselor at prestigious Hunter College High School in New York City, used to keep a copy of Who’s Who handy in his office. When parents came in with visions of Ivy dancing in their eyes, he invited them to look up famous people they admired in Who’s Who. It turned out that their heroes almost never attended Ivy League schools.

We aren’t suggesting that Ivy League schools are no good, or that your child should not apply to one of them, but it is worth noting (even as you look at the $65,000 price tag) that many important, interesting people managed, and are still managing, to get good educations elsewhere—and for less money.

There are many factors that go into a decision to apply to a particular college, and one factor that cannot be ignored is money. You and your child are about to make a business decision, and it’s vital that you keep a clear head. How much are you willing to pay for what level of quality of education under what circumstances? It is possible to pay $48,000 per year for a worthless education, and possible to pay $5,000 per year for an outstanding education. Price is not always synonymous with quality. The real determining factor in the kind of education a student comes away with is how seriously the student took the experience.

This Is a Joint Decision…

Many parents feel that it is somehow their duty to shield their children from the harsh economic realities of higher education. It is a form of need-blind application, in which parents do their level best to remain blind to their own needs. They allow their children to apply to any school they like, without thinking through the consequences of what an acceptance at that school would mean. Taking on large amounts of debt should be a rational rather than an emotional decision, and any important decision like this should involve the student as well. Especially if money is a concern, your child should be included in every step of the decision making, from computing a rough estimate of the expected family contribution to picking colleges with a view toward financial aid.

…That You Must Make in the Dark

One of the frustrating parts about applying to college is that you have to apply without really knowing what it is going to cost. Well, of course you do know the sticker price, but as we’ve already said, the vast majority of families don’t actually pay the sticker price. The $64,000 question is what kind of aid package the different schools will give you to reduce that sticker price.

The process has been made even more difficult by a Justice Department investigation years ago into possible violations of anti-trust law by many of the highly selective colleges, including the Ivies. Prior to the investigation, the FAOs from these schools would get together at an annual “overlap” meeting to compare notes on students who were going to be accepted by more than one of these colleges. After these meetings, there was usually an amazing similarity between the financial aid packages offered to an individual student by the competing colleges. While the Justice Department eventually worked out an agreement with the colleges on this matter, it remains to be seen to what extent colleges will be sharing information with each other after this experience.

Therefore, financial aid offers are still likely to differ by many thousands of dollars. Any counselor who says he can predict the precise amount and type of aid you will receive at one of these selective schools is lying. Thus applying for college is something of a financial crapshoot.

Applying to More Schools

Many counselors feel that it is now necessary to apply to more schools than before, to ensure that one of them will give you a good deal.

One good offer can frequently lead to others. If you have received a nice package from school A, you can go to a comparable school B that your child is more interested in, and negotiate an improved package. For the same reason, even if your child has been accepted “early action” or “early notification” by her first-choice school, you might want to apply to several other schools as well.

An early action or early notification acceptance (unlike a “restrictive early decision” acceptance) does not bind the student to go to that school. The college is just letting you know early on that you have a spot if you want it. Your child has just been accepted by her first-choice school, which is great news, but you won’t receive an aid package for several months. If the college knows that you applied only to one school, they will be under no pressure to come up with a good aid package. However, if you have received several offers, you may find that the first choice will be willing to match a rival school’s package.

Students who need financial aid should always apply to a variety of colleges. Perhaps one or two of these should be “reach” schools at which the student is less certain of admission; the student should also apply to several schools that not only fit his academic profile but also have good reputations for meeting students’ “remaining need”; finally, the student should apply to what we call a “financial safety school.”

The Financial Safety School

Now it may well be that your child will ultimately get into his or her first choice. (According to a survey conducted by the Higher Education Research Institute at UCLA, 77.8% of applicants to colleges in the United States were accepted by their first-choice school). Just as important, your child’s first choice may even give you a financial aid package that is acceptable to you. However, part of picking colleges entails selecting second, third, fourth, and fifth choices as well.

This is an opportunity for your child to get to know several schools better. Students sometimes seem to pick their first-choice schools out of thin air. We have often seen students change their minds as they actually go to visit the schools and read the literature. If money is a consideration, discuss this openly with your child. Look at the relative merits of the schools as compared to their price tags, and discuss what sacrifices both the parent and the student would have to make in order to send the student to one of the more expensive schools if the aid package you get is low.

At least one of the schools you apply to should be a “financial safety school.” There are three factors to take into account when picking a financial safety school. You want to pick a school that…

(A)…THE STUDENT IS PRETTY MUCH GUARANTEED TO GET INTO.

What is an admissions safety school for one student may be a reach for another. Force yourself to be dispassionate. A good way to figure out a student’s chances for admission is to look up the median SAT scores and class ranking of last year’s freshman class (available in most college guides). A particular college qualifies as a safety school if the student who is applying is in the top 25% of the students who were admitted to the college last year.

(B)…YOU CAN AFFORD EVEN IF YOU RECEIVED NO AID AT ALL.

For most families, of course, this means some sort of state or community college. There are some extremely fine public colleges, whose educational opportunities rival those of many of the best private colleges.

(C)…THE STUDENT IS WILLING TO ATTEND.

We’ve met some students who freely admit they wouldn’t be caught dead going to their safety school. As far as we are concerned, these students either haven’t looked hard enough to find a safety school they would enjoy, or they have unreasonable expectations about what the experience of college is supposed to be.

Let’s examine what you might be looking for in a financial safety school based on a rough approximation of your Expected Family Contribution.

Federal vs. Institutional

In the previous chapters we have constantly referred to the differences between the federal and the institutional methodologies. By now you have probably figured out that in many cases the federal methodology is kinder on a parent’s pocketbook than the institutional methodology. However, before you start looking only at schools that use the federal methodology, there are a number of points to be made:

First, a college that uses the institutional methodology must still award federal money such as the Pell Grant and the subsidized Stafford loan using the federal criteria. Thus, the institutional methodology will only affect funds under the institution’s direct control—principally, the school’s private grant money.

Second, families may find that the difference in aid packages from two schools using the different methodologies is actually not very significant. Families who don’t have a lot of equity built up in their primary residence, who don’t show business or capital losses, or losses on property rental may not notice much difference at all.

Third, most of the competitive schools will be using the institutional methodology this year to award the funds under their control. It would severely limit your choice of colleges to apply only to schools that use the federal methodology.

The best way to find out which methodology is being used at a particular school is to ask an FAO at that school. However, as a rough guide, if the school wants you to fill out the CSS/PROFILE form, then it will most likely be using the institutional methodology.

Should We Apply Only to Schools that Use the Federal Methodology?

No. There are so many other factors that determine an aid package—demographics, special talents, academic performance, just to name a few. Any of these factors could make an FAO decide to award merit-based aid or to be more generous in awarding need-based funds. However, if money is a concern, then it makes sense to apply to a financial safety school.

If You Have Extremely High Need

If your Expected Family Contribution is in the $700 to $5,000 range, a good safety school would be a public university or community college located in your own state. This type of school has two advantages. First, the likelihood that you will be eligible for state aid is extremely good. Second, your child may be able to live at home and commute, thus saving many of the expenses of room and board.

However, a student with high need should not neglect to apply to private colleges as well, preferably colleges where that student will be in demand. If the student has good grades, or some other desirable attribute, the student may receive an aid package that makes an expensive private school cheaper to attend than the local community college. Remember, by good grades we are not necessarily talking straight As. At many colleges, there are scholarships available for students with a B average and combined SAT scores of over 1,000 (or the equivalent on the ACT). We’ve sometimes even seen students with C averages and high need get generous aid packages at some private colleges.

If You Have High Need

We are frequently amazed at how often families with high need choose an out-of-state public university as their safety school. For most families with an EFC of between $5,000 and $20,000, an out-of-state public university is the most expensive option they could possibly choose. Why? First, students from out-of-state are charged a lot more. Second, much of the financial aid at these schools is earmarked for in-state students. Third, you will most likely not be able to take aid from your own state across state lines. Fourth, if the student is likely to fit into the top half of the entering class, he will probably get a better deal from a private college.

Families with limited means have difficulty imagining that they could get an aid package of $40,000 per year or more, but in fact this is not out of the bounds of reality at all. Choose schools with high endowments where the child will be in the top quarter of the entering class.

Naturally, you can’t depend on a huge package from a private college, so again, a financial safety school is a must. For families with high need, the best financial safety school is probably still an in-state public university or community college.

If You Have Moderate Need

A family with an expected family contribution of from $20,000 to $35,000 is in a tough position. This is a lot of money to have to come up with every year, perhaps more than you feel you can afford. As Jayme Stewart, a counselor at York Preparatory in New York City, says, “A four-year private school education is not an inalienable right guaranteed by the Constitution.”

A family with moderate need might want to choose two financial safety schools consisting of either in-state or out-of-state public universities. Depending on your circumstances, either choice may actually cost you less than your EFC.

Financial planning is particularly vital to moderate-need families. The strategies we have outlined in the previous chapters can make a much bigger difference in the size of your aid package than you probably think, and may make it possible for your child to attend a private college. For private colleges, you should again be looking at several schools where the student will be considered desirable and stands a good chance of getting institutional grants and scholarships.

Preferential packaging is particularly important to moderate-need families, as is the practice of applying to a wide variety of schools. By applying to more schools, you increase the likelihood that one of the schools will give you a particularly good package. You can then either accept the offer or use it to try to get a better deal at another college.

If You Have Low Need

A family with an EFC of between $35,000 and $55,000 (or more) must decide how much it is willing to pay for what kind of education, and how much debt it is willing to take on. If you are willing to go into debt, then your financial safety school becomes merely a regular safety school.

If you are unlikely to get aid, some of the advice we have given in this book to people who want aid does not apply to you; for example, you might be well advised to put some assets into the child’s name, you might want to set up a trust for the child, and the child should be earning as much money as possible in the years before and during college.

However, even families with low need should apply for aid. For one thing, with the cost of college being what it is, you may still qualify for some. You also have to look ahead four years. Perhaps your situation will change; for example, you might have only one child in college now, but next year you might have two.

Finally, with their high sticker prices, some private colleges are having trouble filling their classrooms. The FAOs at many of these schools seem to be more and more willing to play “let’s make a deal.” As a result, a family’s final family contribution may end up being several thousand dollars less than was calculated by the need analysis company. If you have used our worksheets in the back of the book to determine your Expected Family Contribution, you should bear this in mind before you decide that your EFC is too high to bother applying for aid.

The Public Ivies

Over the past few years, the cost of some of the best public universities has skyrocketed, to the point at which an out-of-state resident can pay more to attend a public university than a private college. At the University of Michigan and the University of California—Berkeley, for example, the cost to an out-of-state student is over $50,000 per year—hardly a bargain, even if the quality of education is high. However these and other “public ivies” remain good deals to in-state residents.

In the past, it was relatively easy to change your state of residence and qualify for lower tuition and state aid. However, in recent years, it has become almost impossible for an undergraduate student to pull this off, unless the entire family moves to that state.

Nevertheless, some of the “public ivies” remain bargains for everyone—for example, Georgia Tech, University of Wisconsin (Madison) and SUNY Binghamton are all first-class schools with undervalued price tags.

What to Look for in a Private College

If you are selecting a private college with financial aid in mind, there are some criteria you should bear in mind as you look at the colleges:

✵ What is the average percentage of need met? You can find this statistic in most college guides. A high percentage is a sign that the school is committed to meeting as much of a student’s “need” as possible. This statistic should not be misunderstood, however, for it is based on an average. A school that normally meets only a low percentage of need may come through with a spectacular offer for a student the school really wants. Another school that normally meets a very high percentage of need may make a very poor offer to a student the school considers marginal.

✵ Does the student have something this particular school wants? Is the student a legacy? Is he a track star applying to a school known for its track stars? Is she a physics genius applying to a school known for its physics department?

✵ How does the student compare academically to last year’s incoming class? If this is a reach school for the student, the aid package may not be outstanding.

✵ Some colleges are very open about their academic wants; they mention right up front in their promotional literature that a student with SAT scores above x and a GPA of above y will receive a full scholarship.

✵ What percentage of gift aid is NOT based on need? If a student has an excellent academic record, this statistic might give some indication of whether she will be eligible to receive non-need scholarships. Of course, this statistic might be misleading for the same reasons we mentioned above.

✵ What is the school’s endowment per student? If the school is on its last legs financially, then it may not be able to offer a great aid package—to say nothing of whether it will remain open long enough for the student to graduate. Don’t necessarily be scared if a small school has a small endowment—take a closer look at what that actually means. Earlham College in Indiana has a small endowment compared to, say, Harvard, but it has a very high endowment per student.

✵ Will the school use the institutional methodology in awarding aid under the school’s direct control?

A General Note of Caution

Take the statistics in the college guides with a grain of salt. These statistics may show general trends, but (like all statistics) they are subject to interpretation. First of all, the information presented in these books usually comes from the colleges themselves, and as far as we know, is never checked.

Second, a particularly affluent (or poor) pool of applicants could skew the statistics. It would be easier for a school to meet a high percentage of need if the applicants to that school tend to be well off.