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

INTRODUCTION

The college application process has been described as the closest thing America has to a “savage puberty rite.” In fact, entire books have been written about the traumatic effect the application process has on students. Much less attention has been paid to another group of unsung heroes who are going through a similar ordeal all their own: the parents who are supposed to pay for all this.

If This Is So Good for Me, Why Does It Feel So Bad?

The cost of a four-year private college education has passed the $200,000 mark at many schools, which is enough to cause even the most affluent parent to want to sit down and cry. The public Ivies—state schools with excellent reputations—have been raising their tuition even faster than the privates. This year, an out-of-state student will have to pay more than $56,250 to attend the University of Michigan for one year.

Meanwhile, stagnating university endowments caused by the stock market slump along with cuts to the education budgets of state governments have combined to create a crisis in higher education. Some colleges have had to slash their budgets, lay off professors, even consolidate with other schools. And even when you factor in the new educational tax benefits, the financial aid available per student has shrunk as rising tuition has forced more and more parents to apply for assistance.

The Joy of Aid

If there is a bright side to all this it is that in spite of all the bad news, there is still a great deal of financial aid available—and we are talking billions of dollars. At these prices, almost every family now qualifies for some form of assistance. Many parents don’t believe that a family that makes over $125,000 a year, owns their own home, and holds substantial assets could possibly receive financial aid. These days, that family—provided it is presented in the right light—almost certainly does. Many parents who make $50,000, rent their home, and have no assets, don’t believe they can afford to send their child to any type of college at all. They almost certainly can—in fact, they may find to their surprise that with the financial aid package some schools can put together for them, it may cost less to attend an “expensive” private school than it would to go to a “cheap” state school.

Who Gets the Most Financial Aid?

You might think that the families who receive the most financial aid would be the families with the most need. In fact, this is not necessarily true. The people who receive the most aid are the people who best understand the aid process.

Some years ago, we had a client who owned a $1 million apartment in New York City and a stock portfolio with a value in excess of $2 million. Her daughter attended college—with a $4,000-a-year need-based grant.

Is This Fair?

No. But lots of things in life aren’t fair. In that particular case, we were able to take advantage of a financial aid loophole involving the way state aid is computed in New York. There are lots of financial aid loopholes.

Is This Legal?

You bet. All of the strategies we are going to discuss in this book follow the law to the letter.

Is This Ethical?

Let us put a hypothetical question to you: If your accountant showed you a legal way to save $4,000 on your income tax this year, would you take it?

The parallels between taxes and financial aid are interesting. Both have loopholes that regularly get exploited by the people who know about them. But more important, both also involve adversarial relationships. In the case of your taxes, the IRS wants as much money from you as it can get. You, in turn, want to give the IRS as little as possible. This pas de deux is a time-honored tradition, a system of checks and balances that everyone understands and accepts. And as long as both sides stick to the rules, the system works as well as anyone can expect.

In the case of college, it is the job of the financial aid officer (known in college circles as the FAO) to get as much money from you as he can. In the pursuit of this task, he will be much more invasive than the IRS ever is, demanding not just your financial data but intimate details of your personal life such as medical problems and marital status. He wants to protect the college’s assets and give away as little money as possible. Let the financial aid officer do his job—believe us, he’s very good at it. But meantime, you have to do your job—and your job is to use the rules of financial aid to make your contribution to college as small as possible.

Parents who understand these rules get the maximum amount of financial aid they are entitled to under the law. No more, and no less.

Besides, You’ve Already Paid for Financial Aid

Whether you know it or not, you’ve been contributing to financial aid funds for years. Each April 15, you pay federal taxes, a piece of which goes straight to the federal student aid programs. You pay state taxes, part of which goes directly to state schools and to provide grant programs for residents attending college in-state. You may even make contributions to the alumni fund-raising campaign at your own college.

Your son or daughter may not go to your alma mater, may not attend a school in your state, may not even go to college, but you have paid all these years so that someone’s son or daughter can get a college education.

You may now have need of these funds, and you should not be embarrassed to ask for them.

Is This Only for Rich People?

Many people think that tax loopholes and financial strategy are only for millionaires. In some ways, they have a point: certainly it is the rich who can reap the greatest benefits.

But financial aid strategy is for everyone. Whether you are just getting by or are reasonably well off, you still want to maximize your aid eligibility.

A College Is a Business

Despite the ivy-covered walls, the slick promotional videos, and a name that may intimidate you, a college is a business like any other. It provides a service and must find customers willing to buy that service.

You may have heard of an education scam that’s been cropping up in different parts of the country in which bogus “trade schools” provide valueless educational courses to unwary consumers. While not to be confused with legitimate trade schools that have been providing valuable educational training to students for years, these so-called “beauty academies”, “computer programming schools”, “truck driver schools”, etc. talk students into paying for their “courses” by taking out government-guaranteed student loans. The schools pocket the money, the student receives very little in the way of education, and then must spend the next ten years paying off the loan. Or not paying off the loan, in which case the taxpayer must pick up the tab.

Higher education sometimes seems like a slightly more genteel version of the bogus “trade school” scam. The colleges need warm bodies to fill their classrooms. Many of these warm bodies qualify for federal aid (including student loans), which helps keep the colleges afloat. Meanwhile, the financial aid officers do their bit by trying to get as much money from the student and her family as possible.

Indeed, an article in Money magazine some years ago reported that 65% of private institutions and 27% of public universities now engage in financial aid leveraging. This is a process used to determine how little aid needs to be awarded to still get the student to enroll.

The Ivy-Covered Bottom Line

Of course there is a great deal more to college than merely a business selling a service—there is the value of tradition, the exploration of new ideas, the opportunity to think about important issues, the chance to develop friendships that will last for the rest of a student’s life—but do not lose sight of the bottom line. Colleges stand accused by many experts of wasting a good part of their endowment through sloppy management, misguided expansion, and wasteful expenditures. A college tuition would cost much less today if the colleges had been run in a businesslike manner over the past twenty-five years.

If colleges are in trouble right now, there are many who would say it is their own doing, and that they will be better off once they have lost some of the excess fat they allowed themselves to gain during the past few decades. Certainly it is not your responsibility to pay for their mistakes if you don’t have to.

But the FAOs have their own bottom line to consider.

An Uneducated Consumer Is Their Best Customer

It is not in the FAO’s best interest for you to understand the aid process. The more you know about it, the more aid they will have to give you from the school’s own coffers. You can almost feel the FAO’s reluctance to let the consumer know what’s going on when you look at the standardized financial aid applications (known as need analysis forms), which are constructed in consultation with the colleges. These forms (unlike the federal tax forms that allow you to calculate your own taxes) require you to list your information but do not allow you to calculate the amount of money you will be required to pay to the college. This calculation is done by the need analysis company. Mere parents are not allowed to know how the formula is constructed.

We are going to show you that formula and much more.

Understanding and Taking Control of the Process

In this book we will first give you an overview of the process of applying for aid, and then show you how to begin to take control of that process. We will discuss long-term investment strategies for families that have time to plan, and short-term financial aid strategies for families about to begin the aid process. We have devoted an entire chapter to a step-by-step guide to filling out the standardized need analysis forms, because the decisions the colleges will make on the basis of these forms are crucial to your ability to pay for college. Once you have received your aid packages from the schools, you will want to compare them. Part four of this book, “The Offer”, shows you how to do that, as well as discussing how to negotiate with the colleges for an improved package.

The majority of our readers are parents planning for their children’s education, but this book is also for older students who are continuing their own studies. Most of the financial aid strategies to increase your eligibility for aid are essentially the same.

A Word of Caution

Some of the aid strategies we will discuss in this book are complicated, and because we do not know the specifics of your financial situation, it is impossible for us to give anything but general advice. Nor can we cover every eventuality. We recommend that you consult with a competent professional about your specific situation before proceeding with a particular strategy. In Chapter Eleven, we discuss how to find a good financial aid consulting service.

Unfortunately, because of the volume of correspondence, we can’t answer individual mail or give specific advice over the telephone. If we did, we’d have no time for our private clients—or for the daunting task of preparing next year’s edition of Paying for College Without Going Broke.

Keeping You Up-to-Date

One reason we initially resisted writing this book was our reluctance to put out a book that might be bought after it was out of date. In the world of financial aid, things change rapidly. We agreed to do this book only after getting a commitment from our publisher that there would be a new edition every year.

However, even within the space of a year, things can change: tax laws can be amended, financial aid rules can be repealed. By consulting our web page (www.princetonreview.com/financialaidupdate), you will be able to keep up-to-date on the very latest changes until the 2018 edition of the book becomes available in the fall of 2017. In response to many requests from our readers, this year we have added an index to this book—available online on this same webpage. If you are not connected to the information superhighway, be aware that most public libraries and educational institutions offer Internet access.

A Final Thought

Depending on which survey you read, between 70% and 80% of all college-bound high school students were accepted by their first-choice college last year. Except for a handful of schools, selectivity has gone by the board. Nowadays, the problem is not so much how to get into college, but how to pay for it once you are there.

In the following pages we will show you how to pay for college. This is not about ripping off the system, or lying to get aid you don’t deserve. This is about empowering students and parents with the information they need to get the maximum amount of aid they are entitled to receive under the law and to minimize their out-of-pocket costs.