Three steps to getting money to help pay for college

The Choice blog just featured an interactive list of more than 600 colleges and universities that award merit aid. Published by Education Life, the higher education quarterly of The New York Times, the list includes the sticker price of the institution’s tuition and fees, the percentage of freshmen who receive merit aid, and the average amount of money that they receive.  Unlike need-based aid, merit aid has nothing to do with how much a family can (or cannot) afford to pay for college.

If you want to improve your chances of getting the money you need to help you attend college:

1. Apply for need-based aid (don’t assume you won’t qualify).

2. Apply to colleges where you have a good chance of admission.

3. Choose schools that award merit-based aid.

Which colleges offer better earning power?

Zac Bissonnette’s Debt-Free U comes out and takes a stand.  He argues that kids should be the major contributors to their educational expenses, that student loans are unnecessary and financially unsound, and that families should look at college as a rational investment, not a coming-of-age ritual where money is no object.  Agree with his take or not, he’s done a lot of research and found the facts to back his book up, which makes me that much happier when he comes out and says…

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DO NOT let anyone tell you that one college will provide better earning power than others.  There is no evidence of this.  What will determine your child’s success will be his talent, determination, and work ethic, and the career path he elects to pursue." 

As both the price of college and the debt from student loans continue to rise, it’s natural for families to wonder just how much return they’ll get on their collegiate investment.  Going to college is important, but going to a prestigious (and expensive) college is not.  It’s what a student does in college that matters.

An easier way to find the net price of each college

The US Department of Education’s College Affordability and Transparency Center includes a search function that will take you directly to each college’s net price calculator.  The net price calculator is an online tool that estimates your financial aid eligibility, subtracts that from the sticker price of your chosen college, and predicts how much you will need to pay to attend that school next year.

As you select the colleges you’ll apply to, you absolutely must visit each school’s financial aid site.  But this search function can make your initial research a lot easier.

Five tips for students seeking outside scholarships

Applying for outside scholarships (those that come from sources other than the state, federal government, or the colleges themselves) can be a time-consuming process.  And according to Mark Kantrowitz of finaid.org, the raw odds of winning an outside scholarship are approximately 1-10.  Still, free money for college is always a good thing, so here are a few tips to increase your odds.

1. Read finaid.org’s scholarship tips here and here.

2.  Do a search on scholarships.com

Scholarships.com is a free, comprehensive database of scholarships that lets you input data about your profile and generate a list of scholarships for which you may be qualified.

3.  Look for the best fits.

Applying for scholarships is a numbers game, but that doesn’t mean you shouldn’t be focused.  Use the list that Fastweb gives you to find the scholarships you have the best chance of winning.  Read the descriptions and the necessary qualifications carefully.  Any scholarship that sounds like they wrote the description just for you is probably a good match.

4.  Use your time this summer to apply.

Much like applying to college, the better your scholarship application, the better your chance of winning.  Use the summer to apply, write the essays, and consider the best choices for any required letters of recommendation.  It will be much easier and less stressful to do this when you aren’t balancing your senior course load and applying to college this fall.

5. Beware of scholarship search scams. 

How do you spot one?  If you have to pay money for it, or if the service “guarantees” scholarships, it’s probably a scam.  All the information you need to find and apply for scholarships can be found at fastweb.com.

Coming next month: 25 Ways to Pay Less for College

25WaysToPayLessForCollegeLater this month, I’ll be releasing my newest guide, “For Parents: 25 Ways to Pay Less for College.”  It will be sold as a downloadable PDF for $3.00.  It covers everything from how to save before college, to how to get more financial aid and scholarships, to how to reduce costs once a student is attending college.  No dirty tricks that could get you in trouble with colleges or the IRS, just easy-to-follow tips that cut through an often complex and confusing process.

I'll announce it here on the blog when it's available, but if you’d like me to email you, just sign up here. That's a list to receive updates whenever I add an item to our online store, but every email I send includes an opt-out link.  If you don't want to know about any items after this one, just opt out when you get the first email. 

Thanks for reading.

Should parents put money in their students’ names?

I know my college buddies and I are getting older when they start asking me for advice on the best ways to pay for their kids’ future college educations.  Here’s a tip I shared with them at our mini-reunion a few weeks ago: unless you want to hurt your eligibility for need-based financial aid, don’t put money in your kid’s name.

Full disclosure: I am not a financial planner, so please talk to one before you move money around based on what I say in this paragraph.  But while I know there are some healthy tax advantages to a parent putting money in their kids’ names, there is also a terrible financial aid disadvantage to doing so.  When a student applies to college, the federal formula for need-based financial aid evaluates the income and assets of both the parent and the student.  Parents’ income is assessed at 47%, assets at up to 5.65%.  But a student’s income is assessed at up to 50%, assets at (gulp) 20%. 

That means that a parent who saved $50,000 to pay for college will be expected to use as much as $2825 of that money to pay for the first year of college.  Had that money been put in the student’s name, the expected contribution would have increased to as much as $10,000. 

If you’re looking for a smart way to save for college that will also yield some tax advantages, look into 529 plans.  The student is named as the beneficiary, but the parent controls the money.  More importantly, colleges treat 529 plans as parent—not student—assets.  

I suppose it's a good thing that our conversations have matured since college, even if we did spend most of our mini-reunion enjoying beer, listening to Springsteen, and marveling at the degree to which Mike's air cymbal playing really adds something special to "Born to Run."

There are always ways to save for college

The idea of saving for college is daunting when you look at the sticker price of many schools today.  But even making little adjustments can help you save and take control of your college financing. 

Parents, if you buy a $3.50 grande latte at Starbucks every morning before work, that’s almost $900 a year in foam.  A one-pound bag of Starbucks Sumatra costs about $14 and brews about 40 8-oz. cups of coffee.  Brew your own java at home, and you’ll save about $15.75 per week in coffee expenses. 

Do that every year your student is in high school and you’ll have saved over $3,000 to put towards college (and that’s not even figuring the interest you’ll accrue if you actually put that extra money in an account as you go along).

I know that $3,000 doesn't make a huge dent at schools that cost up to $50,000 a year to attend.  But every penny you save is a penny less you have to borrow to attend college (or hope to get in the form of grants and scholarships).

There are always ways to save for college. 

The financial downside to part-time jobs in high school

There are a lot of good reasons for a student to get a part-time job in high school—extra money, experience on your resume, and something to impress colleges, to name a few. But there is one potential downside you should be aware of as you start your college planning.  Half of your after-tax income over $3,000 a year will be deducted from your financial aid eligibility.

Let’s say an ambitious kid puts in a lot of hours working a part-time job at an ice cream shop.  If she earns $5,000 after taxes (that’s not unreachable, even at minimum wage), she and her family will lose $1000 in financial aid eligibility. The colleges will also take 35% of any money she managed to save before she earned that $5,000.  So the financial aid formula penalizes the student who works and earns in high school, and can be kinder to the kid who’s never made a dime. 

Still, I think it’s worth it to have the job.  In addition to the benefits I’ve written about before here, every dollar a student has to put towards college is a dollar your family doesn’t have to rely on financial aid to get.  The formula may be kind to kids (and families, for that matter) that never bothered to save their money, but remember that not all financial aid is free money.  A lot of aid comes in the form of loans, most of which are taken out in the student’s name, that need to be paid back.    

A smart approach would be for students to start learning the value of saving.  If you get a part-time job, put part of your weekly paycheck into your savings account.  If your family doesn’t need you to help with college costs, consider yourself lucky.  You can use (or keep) the savings for yourself.   Otherwise, use the money to help pay for college, and be proud of the fact that you’re doing your part to help with college costs.