It’s a shame that the WSJ doesn’t make a lot more of their content freely available to the general public. I say this because the Journal has some of the best articles of any newspaper. Today’s paper had a special section titled Your Money Matters, with articles on various personal finance topics. One of the articles that caught my eye was an article titled Seven Myths About College Finanial Aid ($). The myths (along with my commentary):
1. Financial aid comes only in the form of grants and scholrships.
Don’t forget about federal loans that carry favorable interest rates and are available regardless of financial need.
2. The value of my retirement funds and my home will prevent me from getting need-based aid.
First off, retirement plans are completely excluded. Also, according to the article, home equity on the home you live in is excluded from the federal calculation. However, some private colleges may cap it at 2 or 3 times your annual income. Parents also get something called an asset protection allowance, which is an amount of personal assets that are excluded from the aid calculation based on the age of the parents.
3. I should choose a lender from the list of “preferred” lending copanies recommended by my college financial-aid office.
Shop around but be careful. Lots of private lenders will offer specials (or disounts) but be sure that those specials can’t be easily lost (in other words, READ THE FINE PRINT). Also, you might want to check out FinAid.org’s Calculators. The Loan Discount Analyzer will even let you compare discounts from different lenders.
4. I’m doomed: I’ll have two kids in college at the same time.
Again according to the article, you are more likely to qualify for more aid when you have multiple children in college at once. Hmmm… Maybe they have buy-one-get-one-free offers!
5. The federal aid process is bound by a strict formula, and it’s virtually impossible to eke any special consideration out of college administrators.
Although the questions on the Fafsa are the same for everyone, it still may pay to write a letter along with supporting documentation to the financial-aid consultant explaining your personal situation if you have something that is out of the ordinary. Things like a death in the family, a health issue, job loss, and big changes in family income might qualify you for special consideration.
6. Not to worry. Our brilliant/talented/athletic child will get plenty of privately funded scholarships, maybe even a free ride.
LOL! What parent hasn’t thought this? I know my wife and I have. According to the article, some 87% of parents are counting on scholarships or grant money while 92% of financial-aid officers think that parents overestimate the amount of scholarship and grant money their children will receive!
7. The 529 college-savings plan offered by my state is bound to be the best for me.
Although it pays to check out your state’s plan, it may not always be the best. You have to weigh any tax benefits offered by the state against sales charges, fees, and the underlying mutual funds within the 529 plan. In some cases, it may make perfect sense to go with another state’s 529 plan.
Those were the seven myths according to the article. Overall I thought it was an interesting read. I’m far from an expert on financial aid, so if I missed something please let me know.