Paying for school is a stressful, confusing, and expensive part of the college process. Fortunately, there is an expert like Kim Clark, Senior Writer at Money Magazine, who has spent the last decade examining and writing about financial aid and other ways that families can make college more affordable. Clark recently spoke with Lisa in a Facebook Livestream and answered many of our Grown and Flown readers’ questions.
Here are her written responses to several of those financial aid questions. The Facebook Lifestream can be watched here. Take a look at the comments to see where additional answers and resources can be found.
Financial Aid Questions and Answers
Q1: Do I have to provide my entire tax return, including W2 every year when my kid applies for financial aid?
KC: If you want to get aid without having to provide any information about your financial situation, your child will be limited to so-called “merit” aid, which is aid that is awarded without regard to income or wealth. Some – but not all – schools offer this kind of aid to some students – typically those who have grades or test scores significantly above the average for the rest of the student body. And you don’t have to provide financial information to many private scholarship contests, such as essay contests run by companies or foundation.
But if you want any need-based aid, or a federal student or parent loan, you do need to fill out a Free Application for Federal Student Aid, or FAFSA for every year one of your children will be in school. That means you’ll need to provide information from your 1040, W2, and bank statements every year And if you get selected for “verification,” you may need to provide documents such as a W2. Starting this fall, however, it should be a lot easier because the FAFSA will just automatically import information from your latest tax form, so you don’t have to do all the tedious entry, and there will be many fewer requests for “verification.”
Q2: Our estimated family contribution is really high for all the schools my child was accepted to. Even the “cheapest” option is coming in almost unaffordable for us. I plan to write an appeal letter, but what else should I include? Also, if we do have to finance part of it, how did some of you finance it? Home equity, Parent Plus, private loans, etc.?
KC: Everybody has to decide for themselves what is affordable. But in your case, I would encourage you to write an appeal letter. Here’s our 7-step plan for that . You want to provide an explanation of and documentation for why you can’t pay whatever your net price is. You also need to come up with a number that you can pay. And don’t say that number is $0. Colleges expect families to bear at least some of the costs of educating their children.
Secondly, does your student want to go to college? Put some of the funding burden on them. A motivated student who’s willing to work summers and part-time during the school year should be able to raise at least $4,000 a year in earnings toward college costs. And a student can make sacrifices – choose a triple instead of a double dorm room, etc. – to reduce costs. Sacrifices by the student can save another $1,000 or more. Here’s a list of ways to cut college bills:
Thirdly, how much are the parents willing to sacrifice? Can you cut out family vacations and restaurant meals for the next four years? With tax breaks and sacrifices most families can free up at least $7,000 a year in cash. Here’s a breakdown on how to do that:
Finally, there’s borrowing: It’s totally reasonable to expect students to take out the maximum federal student loans, which are $5,500 for freshmen and $7,500 for upperclassmen. I generally don’t recommend parents borrow very much. But if you are willing to do so and don’t mind tapping your home equity, that’s generally the cheapest option.
Q3: I’ve been hearing about what they say parents should contribute. That is just a suggestion, correct? If parents in reality can’t contribute that much, the student is always free to take out loans? Aren’t there other loans, not directly through the school that could be taken out?
KC: While the “parent contribution” phrase makes it sound voluntary, it’s not voluntary at all. You’ll get a bill from the college, and the only thing that is voluntary is whether you send your kid to that school or not. If you can’t afford your parent contribution out of your savings, there’s only two other ways to pay that bill:
1) Your current income: If you can slash your spending now, you can free up cash that you can direct to tuition payments. Here’s some advice on how to do that:
2) Debt: If you didn’t set aside money in the past (which would be your savings) or can’t generate cash now (your current income) you can plan to take money from your future income – in other words, borrow now and repay out of your income for the next 10 years or so. Most undergraduate students can take out $5,500-$7,500 a year in federal student loans. (Some students have special circumstances that allow them to borrow about $5,000 more than that each year. For more details check out:
I generally don’t recommend parents borrow very much to fund their children’s education. If you have to borrow, that means you haven’t been able to save in the past (often for perfectly legitimate reasons.) So you should only borrow if things have changed (like you’ve gotten a much better job) and you will be able to afford the debt payments in the future Here’s a guide to parent loans:
Q4: Do you recommend the Parent Plus loans? Do they cover 4 years, or do you get a new one yearly? I thought I read somewhere that they aren’t recommended.
KC: I’ll answer the second question first: If you need the money, you have to take out a new parent loan for each year your student is in college. I only recommend parent loans for parents who are really sure they can pay them back easily – who have safe secure jobs or income and will be able to make the payments. Here’s a list of your parent borrowing options:
Q5: Do student loans have an early prepayment penalty?
Q6: For those of you that are appealing financial aid/merit awards, how did you have your kids do it? Who did they contact? Did they email, phone, or send a letter?
KC: In interviewing parents and students, I’ve found that either party can have
success in appeals. The office that handles the appeal depends on the type of aid for which you’re appealing. Need-based aid is usually awarded by the financial aid office. At many colleges “merit aid” is awarded by the admissions office. Our standard recommendation is that you write a letter including documentation showing why you need or deserve more aid. Then, follow that up with a phone call asking for an in-person or telephone appointment. Here’s our 7-step how-to on appealing for more aid:
Photo Credit: Tax Credits