Now that families have sent in their college acceptance letters, reality is setting in: How in the world are they going to pay the bills?
Faced with steep budget cuts and slumping endowments, schools are raising tuition and paring back aid, putting additional strain on families still struggling to recoup investment losses suffered during the financial crisis.
Earlier this year, for example, Harvard University announced that its tuition, fees and board would increase 3.8% for the 2010-11 year, exceeding $50,000 for the first time. Dartmouth and Williams colleges in New England announced plans to replace grants with loans in the aid packages of some students.
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Many state schools, traditionally far cheaper than private schools, are imposing significantly steeper hikes in percentage terms. Tuition at Washington state's four-year public schools is expected to rise 14% in the fall, on top of a 14% increase a year ago. Students at the University of California's campuses face a 32% rise in tuition and other costs. Families are likely to see even larger tuition increases at state schools in 2011 as federal stimulus funds run out.
Fortunately, there are a surprising number of short- and long-term strategies that parents can use put to their finances in the right light to qualify for more aid. All of them are based on one simple principle: "Neediness" is in the eye of the beholder.
"While the money is supposed to go to the people who need it, the reality is that it goes to the people who navigate the process and understand the ins and outs of the formula," says Kalman Chany, the author of "Paying for College Without Going Broke."
Short-term strategies
If your financial circumstances have changed materially, ask the aid office to review your aid package. Under a "professional judgment review," financial-aid officers can make adjustments to the aid package if there have been material changes to the family's income or assets.With two sons preparing to attend Stanford University in the fall, Lynette La Mere of Montecito, Calif., was facing out-of-pocket costs of close to $100,000. She had been able to pay the full cost for her older son, Max Oswald, an incoming sophomore, because her catering business was bringing in about $300,000 a year in profit. But by mid-2009, the recession caught up with her, as people scaled back their wedding plans.
"My profit dropped dramatically, probably by about two-thirds," says the 49-year-old single mom.
Much of La Mere's wealth is tied up in her business -- the property, building and equipment -- which she estimates is worth about $2 million. "It's scary," she says. "I don't know yet what I'm going to do."
La Mere says "the obvious thing" would be for her sons to get student loans, but she doesn't want them to start their working lives deep in debt.
Stanford initially offered her younger son, Lucas Oswald, $5,500 in federal Stafford loans. Then her adviser, Deborah Fox of Fox College Funding, a San Diego company specializing in late-stage college planning, recommended that La Mere send a letter to the school's financial-aid office explaining her steep drop in profit and the fact that some of her business assets, such as commercial real estate, weren't readily available to pay for college. The result: Stanford came up with an additional $9,000 annual scholarship and has indicated that Max will get a similar package.
Schools say they are seeing a rise in the number of students asking for help. Financial-aid applications at the University of Michigan, for example, are up 4% for the upcoming academic year, on top of a 15% increase last year, and the school is making more adjustments to student-aid packages to account for factors such as job loss, says Pamela Fowler, the school's executive director of financial aid.
More than half the undergraduate students at Sarah Lawrence College in Bronxville, N.Y., are receiving grants this year, with an average award of $28,113, up from 46% of students in 2008-09 who received an average grant of $25,908, according to the school. Middlebury College in Vermont says it plans to cap increases in its "comprehensive fee" -- which includes tuition, room and board -- to 1 percentage point above any annual increase in the Consumer Price Index.
Families with kids attending private colleges may be able to qualify for help under the College Board's CSS/Financial Aid Profile, which is used to determine how to distribute the school's own funds. The profile weighs factors, such as home values, that the Free Application for Federal Student Aid, or FAFSA -- which is used to determine a family's eligibility for federal grants and loans -- doesn't consider. Has your home declined in value? If so, think about getting a market appraisal or a 30-day "quick sale value" to document the loss. In addition to home equity, many private schools' formulas also factor in medical expenses and private-school tuition for younger siblings.
"If you can document that the value of your home has decreased by 20% to 50%, it has the potential to make a difference of a few thousand dollars," says Mark Kantrowitz, who runs the website FinAid, which offers strategies to help maximize eligibility for need-based student financial aid.
Continued: Long-term strategies
