7 Myths About College Financial Aid (From the WSJ)

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.

20 thoughts on “7 Myths About College Financial Aid (From the WSJ)”

  1. I think parents should expect to pay all of college. If they get scholarships, all the better.

    I didn’t know 529s varied by state. Good info.

  2. There are some colleges (like UC Berkeley) where you are able to convert federal and state loans into “work study” credit where you take a work-study approved job on campus and the job is half subsidized due to the conversion. Subsequently, the job will pay more than it ordinarily would, because the employer only has to pay half of your paycheck ($11-17/hr for a nice job close to campus). You can work up to the limit, which is based on your total loans and can pay for a lot of college. Note – not all jobs on campus are like this, only ones that are work-study and noted as such.

    To do this, you must apply for financial aid and convert those loans into work-study. Remember – always apply for financial aid!

  3. If your home state’s 529 offers a tax deduction but the investments stink or the fees are high, consider only contributing only what qualifies for the deduction into the plan and putting any excess into a second, out of state plan with better investment choices and/or lower fees. Also, I believe some states still have not closed a loophole that allows the deduction it even if you then roll the money into another state’s plan.

  4. I think parents should expect to pay all of college

    Hey Chris, will you adopt me? I can’t disagree more with that comment. Personally, I would love to be able to lift the burden of student loans for my children. However I’m not going to simply give them the money. Where is the discipline? Where is the value of a dollar? I think 4 out of 5 kids who have their college paid for don’t respect and understand what is actually being provided for them.

    Ideally, I want my kid to know that they have to work hard in school, because college isn’t free. They should get scholarships or be forced to take loans. If they graduate with good grades, get a job, and are a responsible adult AND I have the ability to, I’ll pay off their loans.

    I wouldn’t have the appreciation for money and debt without that bill coming in every month.

  5. I’m also going to have to jump all over Chris for his comment. It’s ridiculous to expect parents to pay for all of college. Some kids don’t go at all, and nor should they if they want a career that doesn’t require it. (Plumbing for instance)

    There ought to be no expectation that parents have to pay for all of college. If that’s the case, then it should be paid for by the government the way that rest of public education is. (Which isn’t going to happen.)

    It isn’t about teaching kids anything, who said education beyond high school was a right? It’s not. It’s a privilege and parents, like with all other privileges, do not have to provide it.

  6. Yeah, I have to disagree with Chris too. Thomas and mapgirl make great points. Secondary education is a privilege.

  7. Mapgirl, why stop at high school? What kind of job can you get with a high school degree today compared to one you can get with a college degree?

    I am *not* saying you cannot get a job as a high school graduate. I’m *not* saying that a high school graduate can’t get a decent or even great job. I’m saying the above because I know I’ll be jumped by people stating those. So I pre-emptively declare that I am aware of those things. I’m saying with a college degree, you open up more possibilities.

    Consider this: Even people with college degrees are having difficulties getting a job. Furthermore, *all things being equal*, the one with a college degree has an advantage in the job market to those with only high school diploma.

    Nowadays, college degree is like high school diploma of a decade ago: just about everybody (in a loose sense) has it. It has become the de-facto minimum requirement for a decent job. Once again, exceptions do exist. But people who are hoping for those exceptions are like the parents in point 6.

    Since by saying education beyond high school is not a right, you are implying that education at some level, where some level is high school or lower, is still a right. Now, why stop at high school or lower? Any particular reason it cannot be a college degree?

  8. It’s difficult getting a job with a graduate degree, let alone a bachelor’s degree. Also, I say that kids’ hard work in school should be put toward school and not working a job. If one does things properly in school, there is no time for a job.

  9. I agree that students should have to bear some of the burden of their education. Otherwise, they are likely to take it for granted.

    I completely disagree with what isen said – “If one does things properly in school, there is no time for a job.” I don’t think spending 10 hours a week working to pay for incidentals is going to impact someone’s GPA. At least it didn’t in my case. In fact, having one (and sometimes more than one) job forced me to become more efficient and more organized, two things that really helped during grad school and my industrial career.

  10. I think some of you may have misinterpreted what Chris was trying to say. The way I understood it, he meant to say that parents should go in thinking that they won’t qualify for any financial aid and plan accordingly (by saving money throughout the child’s life, planning on taking out PLUS loans, preparing their child to take out the Stafford and Perkins loans, etc). That way, if and when they do receive merit or need-based aid, it will be a plus for them. I don’t think he was actually saying that parents should pay for all of their children’s college education, just that they should go in with the expectation that they won’t receive any help. You know, hope for the best, but expect the worst.

  11. I worked FinAid at a school for six years and these are all absolutely correct. The staggering ignorance of parents and students that makes them think that making over $20 means FAFSA/the DOE will give them no money–argh! I know loans aren’t -great- but they’re better than nothing.

    Esmo is correct, as well. You can “trade” loans for work-study, but the work-study money is likely to be very limited, so get to it fast!

    Timing is key with many, many FA items.

  12. A Work-Study job just might give you an edge when starting out in the real world. I couldn’t get financial aid due to a dysfunctional family situation (supported by my father but lived with and was claimed as a dependent by relatives who lived in high-cost area and made “too much” money).

    When I applied for an IT job as I was graduating, the job went to someone else because they had related IT experience in a Work-Study job. This turned out to be devastating for me, as I never did get an IT job.

  13. $30,000 for tuition at a private university. Notice they start out with a big number to scare you. Why does it have to be a private college? Why can’t they point out that many community colleges have two-year transfer degrees for a fraction of that cost? (I’m talking $3-4k a year – that’s a savings of $16k from their original 20k). Then go to a public university, some averaging 20k or less a year. With boarding.

    It’s right in assuming that if you want your kids in college, you should act like you’re paying for it out of pocket – no aid involved. It’s probably *more* important that you *tell your kids this* and *encourage them to save for college expenses* – then they still see that their meager savings is paltry in tune to the expense, and will recognize that if their parents are paying, it’s really on them if they fail.

    @Erin D – you just compared working 10 hours a week to working multiple jobs – I see some difficulty in comparing “working ten hours for fun money” vs. “needing to work three jobs to make ends meet and get a degree.” I worked my ass off, having to drop classes on occasion because life wouldn’t allow it. To assume *anyone* can work and go to school full-time is a fool’s boast (which I’m not saying you’re making, I’m just furthering my opinion).

    I currently make more than many of my “college-grad” friends – I’m still in college with no degree, work full-time and support my wife (and soon a baby as well) – point being – it’s possible to make it in life without a degree, and possible to succeed in school when you work 40+ hours.

  14. you idiots how can college students pay for their own education. Most student are between the ages of 17 and 24, working part time for minimum wage. That is nothing more than spending money! I am 18 years old and a sophmore at a public University in Georgia, I understand that college is exspensive and my parents are strugling, so I do my best to help. Making a 3.0 GPA in the state of georgia means that the state pays your tuition and loans are my best freind but, the bulk of the responsibility falls on my parents, AS IT SHOULD! (COST OF LIVING, BOOKS,MEAL PLANS,ACTIVITIES, TRIPS, OTHER PROGRAMS)If you love your kids THEN you want them to be in a better financial situation than yourself eventually, so stop whining and start looking for help. My parents have 3 kids in college all together and theyr’e proud us, as well as themselves and so am I. I’m never too broke, hungry, or without books,So I thank God and my parents everyday! Understand that Nothing beats a failure but a try and be willing to send your child to college, it’s the only way to succeed now-a-days.THERE IS HELP OUT THERE. Not sending your child to college for fear of it’s costs is selfish. that means that you would rather see them struggle in the future then for you to struggle now. Isen was right , there really is no time to work, I’m a biology major and my parents are constantly telling me to cut back on my work hours, and I always take 3 weeks off before finals. College is hard for all involved parties so I suggest that parents gear up for the 4 -8 year ride.

  15. I think parents should help if they are able. However, I worked my way thru college and it made me a stronger person. Unless you plan on supporting your kids for the rest of their lives, you have to teach them to be adults. I will pay for most of my kids school, but they will work and they will have some loans. If not, they might think everything in life comes easy without sacrifice.

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