Private colleges set common rules for financial aid
Twenty-nine of the nation's most
prestigious private colleges and universities have hashed out voluntary
financial aid guidelines.
schools, which include Cornell, Columbia, Stanford and Yale,
have agreed to judge incoming students by roughly the same set of
financial aid standards.
The aim is to take some of the confusion out of the
financial aid process.
Too often, different private colleges look at a family's
financial information and come up with wildly different numbers.
One college may expect a family to pay a much larger chunk of a
child's education bill than another.
"Over the past decade, many schools have gone
about modifying and altering the need-based formula," says
Don Saleh, associate vice president for enrollment at Syracuse,
who helped write the guidelines. "Families were getting different
answers from different schools about how much a family would be
expected to contribute."
Most experts see the new guidelines as being helpful to families.
Anything that can simplify and standardize the often-mystifying
need-based aid process is welcome.
One potential downside to the new rules is they could
help to minimize competition between the 29 schools. The more a
school has to compete to land a top student, the sweeter the deal
for the student.
"It's somewhat encouraging, but it's also to
protect the schools' best interest," says Kalman Chany, author
of Paying for College Without Going Broke. "If we can band
together than we don't have to worry about one-upmanship."
The guidelines themselves are hardly revolutionary.
"Many schools are already doing these things,"
says Mark Kantrowitz, publisher of FinAid. "Two-thirds of the
document is just codifying what schools are doing already."
Maybe more importantly, the new rules will help to ensure all 29
schools view certain aspects of a family's financial situation the
"There are places where there are judgment calls
and they've said we're going to make the same judgments," says
Sandy Baum, professor of economics at Skidmore College and an expert
on financial aid.
One key change is the schools' handling of student
assets. Traditional need formulas view parent and student assets
Private colleges count 25 percent of money saved in
a child's name when determining how much aid to give. They count
only 5 percent of money held in a parent's name. Because of this,
a family that saves money in a child's name makes itself less eligible
for financial aid.
Let's say two families have each tucked away $10,000
for college expenses. One puts the savings in a parent's name and
one puts the savings in the child's name. The family that saved
in a parent's name would be expected to contribute 5 percent of
$10,000 or $500, toward college costs. The family that saved in
a child's name would be expected to contribute 25 percent of $10,000,
Under the new guidelines, parent and student assets are viewed
as family assets and assessed at a rate of 5 percent.
"In most of our experiences, student assets generally
result from parents having taken advantage of the Uniform Gift to
Minors Act to benefit from a lower tax rate," Baleh says. "It's
the parent's money anyway."
When it comes to divorced parents, the schools have
agreed to use financial data from two parents when calculating aid.
It's left to the school and the family to determine which two parents
-- the natural parents or a natural parent and a stepparent -- will
handle a child's education costs.
In the past, some schools viewed the finances of a
single parent -- the custodial parent. Other schools assessed the
finances of as many as four parents -- the two natural parents and
their new spouses. Because of this, aid packages from school to
school could vary widely.
Schools will also take into account a family's past
education debt when assessing current financial aid. Parent education
loans were not considered in previous aid formulas.
"There are families who have spent down assets
and went into debt to educate previous children and we want to take
that into consideration," Baleh says.
Home equity is another area that the 29 schools have
agreed to handle in the same manner. State schools do not consider
home equity at all when calculating aid. Most private colleges count
home equity but have different ways of assessing it. Under the new
guidelines, the schools will count home equity, but cap it at 2.4
percent times income minus mortgage debt.
-- Updated: April 7, 2003