3 Ways the Government Overestimates Your Ability to Pay for College

There are even more ways that the methodology actually Understates what families could pay. In a "simplification" effort that was ill-advised at many levels, the 1992 Higher Ed Amendments removed several categories of assets from the federal financial aid formula entirely. The most significant example is home equity. Obviously, a person who has home equity is in a better position than someone who does not. A child whose parents have home equity is in a better position than a child whose parents do not. As the article implies, this "simplification" move actually added complexity for students who apply to private colleges because they got together with College Board to develop their own form. Most types of pension assets, even those you can borrow against, are now immune from the federal formula. When distributing their own aid funds, those colleges want to know whether you are truly needy, unlike the federal form which is more of a dot the "I"s and cross the "T"s exercise.

As another example, the feds greatly simplified how to become an "independent" student which means the feds don't ask for parents' info at all. On the other hand, a private college will generally want to be assured that, even if you are 45, you haven't received support from your parents in more than 10 years. Otherwise, they legitimately feel that the parent is the first source for meeting college costs. Every renewal of the higher ed act seemingly creates a new category of "automatic independence." People with $2000 in demonstrable income are routinely "independentized," thus qualifying for maximum aid. Regardless of where you live in the USA, you can't tell me that you can pay rent, feed yourself and fill your gasoline tank for $2000 per year

As for those who say that they shouldn't have to take out a home equity loan ("second mortgage") or borrow against their retirement, this is hogwash. Their are Americans who would do anything to say they had home equity or retirement assets. There are always millions of people with more need. You have an advantage that they don't, and a college has to make those "triage" judgment calls with its money every day. Why shouldn't the federal taxpayer? In addition, if people don't want to tap their assets to pay for their kids' education, then it sounds as if education isn't a priority for them, so why should their kids' education be a priority for colleges and American taxpayers.

Attempts to incorporate local differences into the fed'l formula have been resisted by Congress and constituents, i.e., middle-income families. The one local factor built into the formula is the state-specific tax expense adjustment. Unfortunately, it takes the IRS several years to prepare accurate info to update this part of the methodology. This notoriously resulted in a successful effort by Congress to block an update mandated by a law it had enacted! This happened after States had increased tax levels during the last recession (early 2000s)

Craigie of IN 10:17PM November 23, 2010