Paying for a child's college education is one of life's biggest financial challenges. And with the price of a sheepskin from a top private school exceeding $120,000, even well-off families are investigating financial aid. BUSINESS WEEK Chief of Correspondents Jim Ellis recently talked with Herm Davis, director of the National College Scholarship Foundation and co-author of College Financial Aid for Dummies, 2nd Edition (IDG Books, $19.99) about smart aid strategies.
Q: Families often save in their children's names. Should that change if they want to be eligible for financial aid?
A: The college financial-aid system penalizes student assets by 35% a year, meaning that if a student has $10,000 in assets, [the] expected family contribution would grow by $3,500. Colleges take a much smaller percentage of parents' assets. So in the junior year of high school, families should get rid of any assets in the student's name and move them into the parents' account.
Some parents complain that they'll have to pay tax on the interest on the investment at a higher rate, but the savings in additional college aid can easily make up for that.
Q: Does a family have to be truly "needy" to get college aid?
A: Even making $100,000 to $150,000 a year may not take you out of the ballpark. If you're applying to Yale, Stanford, or Duke, you're in a population that attracts high-income families--so you're being compared against other high-income families. And if you have more than one child in college, your expected family contribution is lowered under the federal-aid formula.
Q: Nonetheless, what's a realistic income cutoff?
A: For a family with two parents and one child in college, it probably wouldn't be worth applying for need-based financial aid at a public university if the parents' combined income is more than $50,000 a year. At a private college, they probably wouldn't get need-based aid if they make more than $90,000 a year.
Q: Are higher-income families with one child in college simply out of luck?
A: Maybe they're just looking at the wrong office for aid. The admissions office sometimes sets aside scholarships or uses tuition reductions to attract special populations. For example, Ohio State University offers Buckeye Scholarships to top students regardless of need.
Q: What if your child is a good student but no Einstein?
A: Instead of messing around looking for financial aid, you might want to just start looking for the best college at its price. Right now, a very hot college is the College of Charleston [in South Carolina]. It's a very good education, and the annual cost is only $14,000.
Q: Is applying for early decision a wise route if you're hoping for aid?
A: A lot of select colleges are really into this early-decision hype. If you don't go early-decision, you might not be admitted at all. The real problem is that if [you] get admitted, you have to forgo all applications at other schools, which might have better aid offers. So before saying yes to an early-decision admission, you need to at least see a preliminary aid offer.
Q: When should students apply for aid?
A: One of the biggest mistakes people make is applying in step mode: They apply for admission, then they apply for financial aid, and then they apply for housing. If you don't want to get any money, that's the way to do it. Preferred-aid deadlines are often earlier than admissions deadlines. So you have to pursue admissions and financial aid at the same time.
Q: Once awards start to arrive, should a student accept all of them?
A: Accept all offers at once. Then figure out which schools you really want to go to. Once there are two or three schools that are finalists, you can start appealing their financial-aid decisions to get a better deal.