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College financial aid packages
can include a combination of low-interest loans, federal work study and grants
or scholarships that need not be repaid. The more desirable your child is to the
college, the larger percentage of grants and scholarships he or she will receive.
So how do you position yourself to score the most
aid dollars possible? Become an educated consumer.
"I feel sorry for parents, almost, when I see
them talk with people in the financial aid office and they think
that person is going to give them the keys to the kingdom,"
says Kalman Chany, founder and president of New York-based Campus
Consultants. "College is big business. The financial aid representatives
are selling you a product. They are salespeople and they know
parents are worried their child won't get in. They specialize in
emotional marketing."
The expected family contribution
No matter what your time horizon, you'll want to begin by sizing
up your expected family contribution -- the amount colleges believe
you can afford to pay.
The Free Application for Federal Student Aid, or FAFSA,
form, used to determine financial aid by most colleges nationwide,
is available online at the U.S. Department of Education's Web
site. A print version can also be obtained at financial aid
offices.
Crunching the numbers will shed some light
on how the process works and what's included in the calculation. The earlier you do this, the better
off you'll be, as it will allow critical time to adjust your financial
picture.
"It's all about what the parents do with their
financial assets that will influence the family contribution,"
Chany says.
For example, colleges determine your expected contribution
using financial data from the calendar year before your child heads
off to school. It's wise to defer big bonuses and avoid
large capital gains and IRA distributions during that first base
income year, Chany says in his book, "Paying for College Without
Going Broke," which is co-authored by Geoff Martz.
Parents should also explain to the financial aid officer
if their salaries that year were inflated (unlikely to be repeated)
due to retroactive pay increases or excessive overtime, he writes.
And send a letter if you sold your home during the base year, since
you'll have to report the profit as part of your assets on the financial
aid form.
Bridging the gap with loans
Unless your child gets a full ride, you'll likely need one or more
loans to bridge the financial gap.
Students can take advantage of federal government
loans, called Stafford loans, which have offered a low, variable
interest rate. However, this year the variable rate on Stafford
loans converts to a fixed rate for new loans issued after June 30.
The new rate will be 6.8 percent beginning July 1.
If you demonstrate financial need, you may qualify
for the subsidized Stafford loan, in which the government pays the
interest while you're in school. Those who fail to demonstrate need
can still receive funds through the "unsubsidized" Stafford
loan, where you pay all the interest but are able to defer payments
until after graduation.
Another federal loan, the Perkins loan, is also available
to undergraduate and graduate students with exceptional financial
need. With a 5 percent fixed interest rate, it's the best of the
batch. If you think your child will qualify, however, the U.S. Department
of Education recommends you apply early. Each school distributes
federal dollars for Perkins loans at its own discretion. Once those
funds dry up, no more awards can be made that year. That means FAFSA
forms should be filled out before the end of January.
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