getting financial aid

Factual Questions
1

Hi Dopers

With audient-jr approaching college in a couple years, I’m starting to wonder/worry about what the financial aid process will be like. Here’s my fundamental question -

If financial aid is need based, then if I had, say $100k saved for college, does the college say, “Great, we’ll take it. Thanks!”. And if my neighbor has saved nothing does his kid get more financial aid? (other things such as income, being equal)

It seems that if the FA evaluation is based on assets, then I’m sure there are all sorts of tricks people go through to hide their assets. If it’s advantageous to not have assets to list (assuming one is honest on the application), why not just give my college fund to my brother to hold for a few years?

That seems too simple, so I’m presuming it’s not a useful strategy. But I’d love to know why not.

Assuming assets stay in my name, I know that the college will consider some more “available” than others - like they won’t expect me to dip into my retirement. One person told me to put money into an annuity which I can’t touch for 5 years. Again, that seems too simple. If I’m a Financial Aid officer & I see an annuity, I tell the idiot parent, “you just put money where you can’t get at it. Your problem, not mine.” I’d like to learn about how FA decisions consider different kinds of assets (home equity, savings, etc).

educate me.

2

The first thing you have to do is fill out a Free Application for Federal Student Aid.
Some aid is based on your income, like the Pell grant and some loans. Other loans are available to anyone. After you fill out your fafsa, you will find out what your expected family contribution is. The difference between that and the cost of attendance (which includes books, room and board, etc) determines how much you can borrow. There are loans directly to the student and others for parents.
There are also private loans, and scholarships and grants. The financial aid office at your college can help you sort all these out. Your high school guidance counselor will also have information, and your state probably has a website that will guide you through the process.

3

Forgot to say: Unless you have a low income, you are probably looking at loans. So your neighbor won’t get more than you if your incomes are similar but he hasn’t saved up. You will have just saved yourself from borrowing and paying back as much.

4

That doesn’t give the OP much in the way of answering his specific questions, which are good ones. The FAFSA formula is quite mysterious - on the app they will ask you just about everything: income, assets (including savings), etc. - then it all gets plugged into one monstrous government machine which spits out a single number, the expected family contribution (EFC), as TheChileanBlob notes. What we don’t know is how exactly they arrive at that number. And it determines just about everything as far as how much aid he or she will get from the gov’mint in the form of subsidized loans, need-based grants, and work study options. Obviously, the lower the EFC the better.

I can’t really shed any light onto the inner workings of how that magical number is arrived at, but would be most interested to know if anyone has any reliable information on it.

5

I just wanted to add that the EFC from the college your child chooses to attend can be significantly higher than the EFC shown on the completed FAFSA.

6

The very first thing to remember is that when a parent hears the phrase “financial aid” he/she thinks it means “money I don’t have to pay.” When a school says “financial aid” it really means “money that’s coming from someone other than the parent or student.”

That includes grants, scholarships, work-study programs, employer-paid tution and of course, loans.

So let’s say you fill out the FAFSA and it decides your Expected Family Contribution (meaning from parents and student) is $10K/year. Tuition is $20K/yr. Does that mean you’re eligible for $10K in grants and scholarships? Absolutely not.

You may or may not be eligible for ANY grants or scholarships. What you will be eligible for is a total of $10K/yr. in government-backed loans to you and your kid. If you and your kid can’t scrape up the $10K you’re expected to contribute, that means you’ll have to borrow the balance from a private lender.

If the student is eligible for a merit-based scholarship, that means there’s no financial test involved. If it’s a need-based scholarship, that means there is a financial test, as well as an academic requirement.

To use my own kids as an example, I had one who went to a private university. She received an academic scholarship (not need-based) for 50% of her tuition, her mother and I paid 25% and she took care of the other 25% through her own money and student loans. One went to a state university and got a “President’s scholarship” (not need-based) that required not only keeping his grades up, but also had a work-study component. The rest the money came through student loans and our money, with a small, subsidized parent loan to cover the balance.

The third kid went to a private university that made it clear up front they did not give any kind of need-based aid. Nor did they give any kind of scholarships. The only school-based aid available was work-study – and since nearly every student there technically qualified, there were a lot of applicants and relatively few jobs. Students had to look for outside scholarships on their own, or finance school through student and parent loans.

The short answer to your questions is what TheChileanBob says. Unless you can hide enough of your assets outside the family (mother, father, student, custodial step-parent) to qualify for a Pell Grant, (which is generally restricted to students from really low-income families) you’ll have to find the money somewhere, either from savings, subsidized loans or non-subsidized loans.

7

that’s a really good point. I’ve been equating “financial aid” with “free money”.
Didn’t harvard recently announce that familes making something like under 60k don’t pay any tuition?

It seems silly that the need-based evaluation is partially to determine if you’re eligible to borrow money. I figure everyone can go do that.

8

Many people can borow money, but not everyone qualifies forfederally guaranteed student loans at below-market interest rates, and with other advantages (forbearances if you are unemployed, loans cancelled completely if you die or are permanently disbaled, that kind of thing).