Who Gets What?
An inside look at how colleges gauge your financial need
Tyrone Jeffress knew that getting accepted by a college would involve subjective judgments by the admissions office. But he thought the decision on his financial aid application couldn't help being by the numbers and objective.
Was he ever wrong. Four colleges agreed that the aspiring engineer from Bethlehem, Pa., would make a great addition to their freshman classes. But the same schools couldn't agree on what would seem to be a much easier question: how much his family could afford to pay. The federal government estimated that the Jeffresses should fork out $15,000. But the University of Delaware in Newark wanted the family to pay its full $21,000-a-year cost for out-of-staters, for instance, while Drexel University in Philadelphia expected the family to come up with $37,000 a year. Jeffress, 18, was shocked. With his older sister already in college, his parents (his mother is a teacher, and his father is a computer programmer) had figured they could stretch to afford $10,000. The colleges "didn't know anything about my need," he says.
Before classes had even begun, Jeffress had learned his first lesson in college economics: Financial need is in the eye of the beholder. As college costs soar, more middle-class families like the Jeffresses feel they need help. Colleges, on the other hand, say it isn't easy to gauge a family's true need. Thanks to the growth in "blended" families and new financial tools like flexible home equity credit lines, it's tough to figure out which households are really hard pressed and which ones simply don't want to have to sacrifice a Caribbean vacation. What's more, aid officers argue, asking families to save and borrow for college is reasonable, since education is an investment that pays off with much higher future earnings.
Free-for-all. Financial assessments begin with formulas developed by the federal government and the College Board. Then, the school's financial aid officer applies his or her own judgment to determine how much money your family actually needs. Finally, aid officials look at their own school's "need" (that is, how badly they want you to attend based on your academic accomplishments or other talents) before deciding how much they'll actually award. The result is a free-for-all among different colleges that often leaves families baffled and disappointed.
Definitions of financial need are beginning to change, however, and the new thinking about aid may offer some relief to worried parents. This fall, 28 prestigious private schools will try out a new method of defining need that they say should be clearer and more consistent. The experiment is controversial, but if it proves successful there's a good chance other colleges will follow suit.
In the meantime, understanding how need is determined and how the process is changing gives this year's crop of applicants an opportunity to play the aid game to their advantage, says Bruce Hammond, author of Discounts and Deals at the Nation's 360 Best Colleges (Golden Books, 1999, $20) and a counselor at a private high school in New Mexico. "There's a premium on information because things are so complicated," he says. The more you know about the way need is calculated, the better you can figure out where to apply and how to evaluate--and improve--competing packages. Here's a guide through the aid maze.
The Players
First, you need to know the major players:
The U.S. Department of Education. This federal agency is the single most important arbiter of your financial-aid fate. Government computers spit out an "expected family contribution," or EFC, after a student fills out the Free Application for Federal Student Aid, or FAFSA, which is available on the Web at www.fafsa .ed.gov/. This form is used to decide student eligibility for federal Pell Grants, Stafford Loans, and most state aid. A family of four with $65,000 in income and $20,000 in nonretirement savings, for instance, would be expected to come up with about $8,600 for the year.
The College Board. This private, non-profit organization, which also runs the SATs, charges applicants $5 to process its Web-based College Scholarship Service Profile application (http://profileonline .collegeboard.com/index.jsp), which is required by many private schools. It charges an additional $17 for every college to which you have the profile sent. The profile asks more about assets and investments than the FAFSA to gauge whether a family may be able to afford more than its earned income would suggest. And the profile generally spits out a higher EFC. The College Board says that the same $65,000 family would get an EFC of about $9,000 from the profile.
Your college's financial aid officer. Each officer applies the school's own methods in determining each award and can also factor in extenuating circumstances such as a recent job loss. At Princeton University, which has one of the most generous aid policies in the nation and doesn't require loans at all, the $65,000 family could get about $30,000 of the $39,000 cost paid for by grants. If it had two children in college, even a family with total income of $120,000 and $50,000 in nonretirement savings could receive as much as $29,000 for the Princeton student.
Most schools aren't so generous. Public universities typically leave a $3,800 gap between students' official need calculation and their actual aid, while private colleges leave a gap of more than $6,000. That gap will very likely grow next year, as colleges face continued economic troubles.
To make what they consider strategic use of their limited aid dollars, colleges are increasingly awarding more money to kids with top grades and test scores or who bring ethnic or geographic diversity. That's one reason Alex Fenske, a straight-A student with high test scores, will be getting a full $25,000 ride at Purdue University in Indiana this year, even though the FAFSA calculated his family should contribute $4,677 to his education. His older brother, Doug, a B student with exactly the same EFC, got only a $500 grant to help pay the $9,000 cost of studying at Eastern Illinois University in Charleston.
The 568 Group. This newcomer on the financial aid scene is made up of 28 of the nation's top colleges, including Amherst College, the University of Chicago, the Massachusetts Institute of Technology, Columbia, Duke, Georgetown, Rice, Stanford, and Yale. (Four of the Ivies are not participating: Brown, Dartmouth, Harvard, and Princeton.) The group, named after a law that waives antitrust provisions to allow the members to meet, wants to lessen the confusing variation in offers by requiring aid officers to use the same method for determining need. Applying for aid "should not be like bargaining in a bazaar," says Morton Owen Schapiro, president of Williams College and a member of the group. Critics fear the new approach will reduce competition (box). But colleges in the group respond that they can still package aid differently from one another (offering a more favorable ratio of grants to loans, for instance).
The Process
The way these players analyze the three building blocks of need--income, expenses, and assets--can make a big difference in your financial aid offer.
Income. The FAFSA looks at the family's after-tax adjusted gross income for the most recent tax year. Some self-employed parents try to artificially depress their income to maximize aid, but colleges are increasingly wise to the tactic. Syracuse University in New York last year received an application from a student whose father, a car dealer, reported an income of only $9,000. He turned out to have substantial assets--and the student received no university aid.
The way divorced parents' earnings are calculated can also lead to disagreements. The FAFSA and College Board profile ask only for custodial parents' income, which means stepparents can be on the hook. Aid officers say that they get many complaints from stepparents who may, for instance, be supporting their biological children. Maureen McRae Levy, director of financial aid for Occidental College in Los Angeles, ignores the prenuptial contracts sent in by angry stepparents. "Prenups don't erase my rules or their ethical obligation," she says.
The 568 Group will try to address these controversial blended-family decisions by gathering financial information from all parents and stepparents, then leaving it up to the aid officer to decide which two parents' income should be counted.
Beware of trying to hide investment income. The 568 Group also may reduce aid to families whose reported investment income seems too low given the size of their reported assets.
Expenses. The FAFSA exempts income that is needed to pay for a family's basic living expenses. The modest federal allowance ranges from nearly $13,000 after taxes for a single parent with an only child in college to, for example, about $21,000 for a family of five with two kids in college. After that, the feds expect from 22 percent to 47 percent of a family's additional income to be available for college expenses. The College Board's profile gives families more for basic expenses, allowing almost $15,000 for the single-parent family and more than $24,000 for the family of five. It also exempts some medical spending, savings, and education expenses. (All the allowances will be adjusted up by 2 percent to 3 percent for inflation in 2003.)
The 568 Group promises to be even more generous. It will add to the College Board's allowance a geographical cost-of-living adjustment for residents of high-cost cities like New York, San Francisco, and Honolulu.
Assets. After exempting all home equity and up to $75,000 of parental savings, the FAFSA asks parents to spend no more than 5.6 percent of what's left of their nonretirement assets each year. Students are expected to contribute 35 percent of their savings annually. The College Board exempts as little as $14,500 in nonretirement savings but asks families to spend no more than 5 percent of all other assets on tuition. It takes 25 percent from students' savings and expects freshmen to contribute an additional $1,150 in summer earnings.
The 568 Group will strike a middle path between FAFSA and the College Board by capping the home equity available to pay for tuition at 2.4 times the family's income and asking the family to spend no more than 5 percent of available assets--including the student's savings. And it will continue the FAFSA and College Board policy of exempting retirement accounts.
The bottom line for applicants to the class of 2007: Students who show the greatest need under financial guidelines while convincing colleges that they will bring something special to the campus will most likely receive generous offers. Average and even above-average students from middle-class families who don't stand out will probably get less.
Jeffress, now a University of Delaware freshman, says he is all too aware of the dangers of expecting colleges to meet what he thinks his financial need is. By appealing to Delaware and receiving a larger loan, then scouring Web sites to find merit scholarships, he has reduced the cost to his family by about $5,000. He is planning to be even more disciplined about his aid and scholarship applications next year. Who knows, learning how to pay for tuition may be one of the most important lessons of his college education.
This story appears in the September 30, 2002 print edition of U.S. News & World Report.