Avoid financial aid scams

This CNBC piece shares some good tips on how to avoid scams that purport to help you pay for college, including:

  • Scholarship applications that come with a fee
  • Seemingly exclusive invitations to workshops that in reality are open to everyone
  • Seminars that promise better information than your high school counselor can give you

For honest, reliable advice, here’s NACAC’s list of trusted sources.

How should you spend your 529 savings?

Parents, if you have a student starting college this fall and you’ve saved money for college in a 529 plan, you’ll soon be faced with making a decision about how and when you’ll spend it. Should you try to spread that savings out over time while your student is in college? Or should you use what you’ve saved in the first semester or two?

Financial aid expert Mark Kantrowitz tackles this question in this column, “What is the best way to use 529 plan funds?” The details within the explanation might get a bit complex for those like me who don’t speak fluent finance, but hang in there until the end where he summarizes his recommendations.

Is that your best and final financial aid package?

If you’re a parent of an applicant receiving their admission offers, and the attached financial aid packages, you may have heard that your financial aid award might not be the college’s best and final offer. It’s possible to appeal your financial package and to secure yourself even more aid. But given how many families choose to do so, your odds of success improve if you remember a few important points.

Here are scenarios that increase your chances:

1. Your financial status has changed since you filed your FAFSA. For example, have you lost a job, have you incurred unforeseen expenses like medical bills, have you begun caring for an elderly parent, etc.?

2. Did you report any information incorrectly in your original FAFSA or other financial aid paperwork?

Either of those first two scenarios mean that the financial picture used to evaluate your need was incorrect or has since become outdated. Neither is a guarantee that a college will alter your aid package, but they are both compelling reasons to request that they reconsider, especially when you can provide documentation to substantiate the change.

3. Did your student receive a more generous package from a comparable college? “Comparable” is a tricky term here. Regular readers know that I don’t believe Princeton is somehow empirically better than Prescott College. But colleges know who their collegiate competition is. They know the schools most likely to admit—and to enroll—students from the same applicant pool. And put bluntly, they know their place in the pecking order. So if two schools that enroll students with similar qualifications give you very different financial aid packages, a compelling argument to reconsider can be made to the school who offered less aid. But it might be less effective to pit your reach school against your safety school in the battle for more financial aid.

Now, here’s some additional advice to help you avoid ineffective approaches:

1. Don’t base your argument on your student’s merit. You can give a publicist-worthy pitch about the relative strengths of your student. But that merit has already been rewarded with an offer of admission. Financial aid officers are more likely to respond to facts and data than they are pride and puffery.

2. Don’t sound entitled. Financial aid officers believe that aid should be awarded based on a family’s ability, not their willingness, to pay. Don’t base your argument on what you think you deserve. Base it on what you can prove that you need.

3. Don’t negotiate, play hardball, or do anything else reminiscent of buying a car. The financial aid officer’s job is not to put your student in this college today no matter what it takes. It’s their job to meet your demonstrated need while protecting the college’s assets. Treat the interaction like a facts-based, respectful discussion rather than a game of salesmanship, bluff, and bluster.

Financial aid and divorced parents

Some of the most common questions parents ask during our financial aid seminars are around divorce. Are both parents responsible to pay for college? How will schools evaluate financial need if a parent refuses to contribute? Do responsibilities change if a parent remarries? If you’ve got similar questions, Mark Kantrowitz delivers a good primer on the topic here.

Which financial aid award is best?

Not all financial aid awards—or all financial aid award letters—are created equal. Financial aid can come in several forms, from free money that doesn’t need to be paid back, to loans, to work study programs. There’s no standardized way to present the award elements to families, and many colleges highlight the total amount of the aid package but make the families decipher just how much of that award, if any, is tantamount to a discount off the sticker price of the college.

To help you compare one school’s financial aid package with another, check out the financial aid comparison tool on the College Board’s website. You enter the figures, then it does the math and tells you what each school will actually cost to attend.

A new investment strategy for 529 plans?

Many families saving for college in 529 plans use age-based asset allocation, a strategy that invests more aggressively early in your child’s life and later changes to a more conservative strategy as the student gets closer to college. If you’ve got young kids and you’re saving in a 529 plan, you might be interested in Mark Kantrowitz’s recent white paper, “Improvements in Age‐Based Asset Allocation: Strategies for College Savings and Retirement Plans.”

As the summary describes in part:

“This paper presents a systematic way of improving the performance of age-based asset allocation strategies by delaying the onset of the shift to a more conservative mix of investments by up to 10 years. This increases the return on investment by increasing the duration of the initial investment in high-risk, high-return asset classes, but without significantly increasing the overall risk of investment loss. The age-based asset allocation is then compressed to fit the remaining investment horizon.”

The summary is here, and the paper itself is here.

Saving for college during a market downturn?

Mark Kantrowitz is a nationally recognized expert on financial aid and paying for college. Here’s what he had to say about the recent market downturn and how that might impact families’ college savings plans.

“Typically, parents with 529 accounts, the tax-advantaged college savings plans, are making a flat monthly contribution into those accounts. That means that when the market is down, they’re getting more shares for their buck than if the market was higher, said Mark Kantrowitz, a financial aid expert. ‘If you think that the market is going to go down and continue going down forever until it hits zero, then maybe you should be worried,’ Kantrowitz said. ‘But if you think this is a momentary blip and then eventually the market is going to recover then you should continue investing.’”

The rest of the article is here.

Paying for college: what advice can you trust?

If you search the internet for advice about how to get into college, some of it will be great and some will be flat-out wrong, but most sites don’t exist with the sole intent to scam you. Unfortunately, the same cannot be said for advice that purports to help you pay for college. Many of those sites appear to be offering free, helpful advice, but actually have an unstated financial interest in whether or not you follow it. They push lenders that they have arrangements with, or require a fee for something that’s widely available free of charge, or arouse fear with the promise to cure it for a fee.

Thankfully, the National Association of College Admission Counseling has created a list of trusted, current sources counselors can recommend to families. You can find that list here.

Fear of (scholarship) displacement

The New York Times opinion piece “The Catch 22 of Applying for Private Scholarships” shares one student’s frustration with “scholarship displacement.” If you win private scholarships (also known as “outside scholarships”) from companies, churches, non-profits, etc., many colleges reserve the right to reduce your need-based financial aid award accordingly. For example, if you win a $1,000 scholarship from the local Rotary Club, your college may reason that you now need 1,000 fewer dollars in financial aid. It raises a logical question: What’s the point of actually applying for private scholarships if the net gain will be $0?

But it’s important not to make rash decisions around college financing. So here are a few important points that are not made clear—or are left out altogether—from the article.

First, not all need-based financial aid is free money. It can also come in the form of loans or work study programs. According to the National Scholarship Providers Organization, 80 percent of colleges will reduce loans or work study first if you receive a private scholarship. That’s not such a bad displacement break.

Also, remember that every dollar you win in scholarships is a dollar less you’ll be required to pay for college. Yes, that dollar in scholarship terms may count for more at some colleges than it does at others depending on each school’s displacement practices. But free money (that does not have to be paid back) to pay for college is pretty much always a good thing because it gives you more control over your financial destiny.

And finally, there are steps you can take to mitigate your award displacement if you find yourself in that situation. Financial aid expert Mark Kantrowitz shares some of his tips in this article.

The vast majority of the funds available to help students pay for college are accessed by applying for need-based financial aid. But private scholarships can help reduce your costs even further. If you’re concerned about college costs, don’t let fear of displacement deter you from availing yourself of every option.