Decision Time
Scrutinizing aid offers now can help avoid costly mistakes later
When the acceptance letters arrived in the spring of 2001, the Gerstel family of Agoura Hills, Calif., was already celebrating son Adam's cancer remission. And the festivities continued when the family, savings exhausted from medical bills, learned Adam had been offered a jaw-dropping $25,375 to attend New York University's Tisch School of the Arts. Adam's dad, Marc, figured he could borrow the extra $13,000 a year he'd need to meet the $38,000 NYU had estimated as the total cost of attending.
But when the bill arrived, Marc Gerstel panicked. It wasn't that $5,000 of the $25,375 was in the form of a student loan. It was the fact that NYU wanted nearly $7,000 more than the family had planned. Seems Marc, who runs his own dental lab, had failed to analyze the fine print on the financial aid letter. Marc learned that an additional $4,000 of the aid was work-study, which would be paid to Adam as he earned it. What's more, NYU's earlier estimate failed to include about $3,000 in fees for film classes, textbooks, and other extras. "It was like buying a car" with its fine print, catches, and surprise costs, says Marc. "It was confusing as hell."
It is indeed. And colleges often add to the complications. Some package their awards in ways that financial aid experts say can't help but confuse students and parents. Even the best-intentioned use the mind-boggling jargon of financial aid--FAFSA, EFC, and PLUS. And because each school uses different aid strategies and form letters, comparing offers can seem like an exercise in differential calculus. But parents and students who expend a little extra effort to do some simple math, draft a polite appeal letter, and think creatively can help reduce college bills.
Free money. The first step: Figure out the real value of each school's offer. Start by adding up only the grants, which are handed out according to need, and scholarships, which are awarded for good grades, test scores, or other indicators of merit. "They are the only way to reduce your out-of-pocket costs," says Kalman Chany, author of Paying for College Without Going Broke.
Next--and this is key--draw up a realistic estimate of the total cost, including tuition, fees, room, board, and all the extras such as transportation and entertainment (story, Page 57). Now subtract the amount of free money. "They need to be certain that they look not only at the offer but at the cost of education," says Charles Bruce, senior director of scholarships and financial aid at Oklahoma State University. He frequently has to explain to parents that his lower offer may be a better deal than bigger ones from private schools with higher tuition. "Then the light goes on."
Butter up. Once you've got the real cost, take a hard look at the kinds of grants included in the offer. Flattered that one school has recognized your student's genius and awarded him or her a "merit scholarship"? Maybe you shouldn't be. Colleges aren't advertising one key reason behind the booming trend of renaming need-based aid as "merit" based. A 2003 Harvard study showed that students are nearly twice as likely to go to a school that offers them a merit scholarship as a school that offers them the same amount in need-based aid. In many cases, the study found, the students were so wowed they bypassed bigger offers from schools that would probably have offered a better education. "It was an astonishing result," says coauthor Christopher Avery, a public policy professor. While many merit scholarships are legitimate, "they can be a device colleges use to gain leverage in recruiting," says Avery.
Thirdly, as Mahlet Endale, now a graduate student at the University of Georgia learned the hard way, it's important to investigate the strings attached to each of those grants and scholarships. Endale's B+ average in high school won her a $3,000 state HOPE scholarship in 1997. And because her father, a newly minted Ph.D., hadn't yet found a job, she received lots of need-based aid from Emory University. But because calculus and chemistry proved tougher than anticipated, Endale's grades fell below HOPE's 3.0 minimum and she lost the scholarship. By that time, her dad was employed and her family's income had risen so much she wasn't eligible for much financial aid her sophomore year. Endale borrowed enough for one semester while she arranged to transfer to lower-cost University of Georgia in nearby Athens. "It was tough," says Endale. "I felt defeated." But she brought her grades back up to win the scholarship again her senior year. And she made sure her younger sister, Liya, who also won a HOPE, learned from her mistakes.
If the free money is mostly in the form of need-based aid such as Pell grants, remember that the grant may not be renewed next year if, say, a parent receives an inheritance or a big raise. And merit grants, too, are easily lost. Most high school seniors don't realize that the typical freshman's grades drop anywhere from one third to a full point (on a 4-point scale) from his or her high school average. So it is no wonder that more than 60 percent of HOPE winners lose the scholarship. Nor do many schools that offer departmental scholarships--special aid for, say, math or biology majors--warn that fully 50 percent of all college students change their majors at least once.
After grants, the remainder of the award is typically in the form of loans, which have to be repaid, and work-study, which has to be earned. Parents and students contemplating whether to take advantage of these latter components must do some heavy thinking. Take work-study, for example. The federally funded jobs offered to needy students, while convenient, are just like any other job. And that's why families need to be wary. Studies show that while working a few hours a week during the semester actually helps a student's academic performance, spending more than 15 hours at a job can harm grades. So parents should be concerned if a college packages more than about $2,000 (the national average of 11 hours a week at $6.10 an hour) in work-study in their annual offer for a freshman.
Adam Gerstel, for example, says that though he searched diligently, the best-paid work-study jobs he could find garnered between $6.50 and $8 an hour. And classes and study didn't leave him enough free hours to earn more than half of his $4,000 award the first year. NYU says its work-study jobs average about $9.50 an hour, which would allow a student working 15 hours a week to earn $4,000 during the school year. NYU spokesman John Beckman says the school has not received complaints that students are having difficulty earning their allotted award.
Loans are also a tough call. Borrowing to achieve a degree can be a good investment, since college graduates earn, on average, about $1 million more during their lifetimes than do high school graduates. And the federal loan programs, especially the subsidized Stafford loans, which are interest-free while the student is in school, are the best deals. But some counselors urge students to try other cost-slashing steps--such as choosing a lower-cost school--before taking on more onerous private loans. And economists warn that students who graduate from college with debt exceeding $30,000 or so could have a tough time making their first few years of loan payments.
That's exactly what Lenzy Krehbiel worried about in 2002 when she received $15,000 in grants to attend her dream school, the University of Chicago. Her parents couldn't afford the remaining $25,000, and Krehbiel quickly realized her coveted degree would probably leave her $100,000 in debt. A heartbroken Krehbiel opted for her state school and has no regrets. "I'll graduate debt free and be in a better position to go to law school or graduate school," says the Oklahoma State University sophomore.
At least Krehbiel thought about her future. Financial aid counselors say lots of other students have tunnel vision, focusing solely on getting into college and scraping up the money for the first year. As a result, many fail to think about whether their financial aid award has staying power."
Slow-going. One student who wished he'd had a crystal ball is Jose Solache, 23, of Lynwood, Calif. Solache thought he was being financially smart in 1999 when he decided to enroll at low-cost California State University-Dominguez Hills--instead of borrowing to attend a private college. But today, despite five years of classes, Solache is still a semester away from his teacher's credential. While he's still happy with his choice, by the time he finishes, he will have borrowed as much as a friend who went to private school and got her degree and credential in just four years. Why the snail's pace? His school requires a completed bachelor's before students can start the three-semester credential program. Worse, budget cuts are making it harder to get into required classes. In fact, the share of students nationwide who actually graduate in four years has fallen to 36 percent, down from 47 percent a generation ago.
No matter how you slice and dice the numbers, it's very likely the cost of college will seem completely out of reach. Colleges are, on average, leaving a gap of about $3,800 between their annual aid packages and what they estimate families can actually afford to pay. So it's tempting to march into a financial aid office waving financial records and offers from competing schools to demand more money.
If you can restrain yourself long enough to calm down first, appealing (most colleges hate words like "negotiate" or "bargain") can be a good idea. Surveys show half of all appeals resulted in some kind of improvement to a financial aid award. The key to success lies in choosing the right time and targeting your appeal, professional aid counselors say. Students have the most leverage right now--before they've sent in their commitments--and can threaten to choose another college, says Linda Taylor, founder of College Funding Associates of Agoura Hills, Calif. Those who need more time to resolve their appeal can maintain their leverage after May 1 by sending deposits to two schools, she says. The most successful strategy is to submit evidence that the family is needier than the college concluded. If the family has suffered a setback, such as an illness or a loss of a job, nearly every college is likely to make allowances, she says.
Setting off a bidding war is harder. Public schools have little discretionary money. And the top schools don't need to bid. But small private second- and third-tier schools are likely to up an award from a student whose GPA and test scores are significantly higher than those of the average student at the college, says Taylor.
Gut instincts. Still, as important as price is, it shouldn't be the single most important factor in choosing a college. Students should attend the college that is the best fit, both academically and financially. But don't be blinded by your green eyeshade, says Shirley Bloomquist, who recently retired as the director of guidance at Thomas Jefferson High School for Science and Technology in Alexandria, Va. She recommends students visit each school they're considering and then choose the one that feels best, even if it seems a little bit of a financial reach. "I'm a big believer in gut instincts," says Bloomquist.
In the end, that's what Adam Gerstel did. After visiting NYU in the spring of his senior year in high school, he knew it was right for him. And despite the later financial problems, he has never considered giving up. Instead, he started cooking his own meals to save money. And he signed up for one extra course each semester. As a result, he's going to graduate a semester early, saving him and his family more than $20,000. "Go to the college you really want to go to," says Gerstel. "You'll figure out the money."
This story appears in the April 19, 2004 print edition of U.S. News & World Report.