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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.

The 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.

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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."

Setting standards
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."

Family assets
Maybe more importantly, the new rules will help to ensure all 29 schools view certain aspects of a family's financial situation the same way.

"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 separately.

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, or $2,500.

Parental guidelines
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

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See Also
PLUS: Listing of 28 schools with new guidelines
Finding the cash for college
Educate yourself on financing college
Don't borrow through the roof to pay for college
More personal loan stories

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