We want to share 6 reasons you need professional guidance on financial aid when attempting to complete the FAFSA, CSS Profile, and other forms. The most important thing to keep in mind is Financial Aid isn’t really about helping students pay for college. Instead, it’s part of an elaborate strategy colleges use to attract the students they want, admit the students they need, and encourage others to stay away. This is a very important reason why you need professional guidance. You need a private financial aid consultant.
You may think that sounds harsh, but the reality is colleges and universities are the largest for-profit “non-profit” businesses around – and yes, they regularly engage in a practice that we refer to as “financial aid leveraging.”
Financial aid leveraging is a term that is neatly summed up by the second sentence of the quote above. Basically, the colleges will offer as little as they think they can to get your student to take the bait and commit to attending their school. This means they have more money they can then use to attract more students.
Obviously, the colleges themselves won’t tell you that they engage in these practices! That’s why it’s in your best interest to learn all that you can about the process, so you know what you can do to make things work in your favor. With that in mind, here are 6 more things the colleges really don’t want you to know about their financial aid practices:
- Your financial need can affect your chances of admission. While most colleges won’t tell you that very few private colleges admit students without considering family income and need. Of course, they say this is rarely a determining factor, but it is quite common for private schools to assess financial need before deciding whether or not to admit a student. This is less of a factor with public schools – especially for in-state students. Financial aid doesn’t necessarily mean free money.
- Even if a school promises to meet your student’s entire need (which most don’t), your financial aid package may not consist entirely of money that doesn’t need to be paid back. In fact, Federal loans comprise the largest share of financial aid awarded – a total of over $110 Billion annually. And for schools that typically don’t meet a student’s entire need, these families may need to borrow even beyond any loans that are offered in the financial aid package. Merit aid isn’t ONLY for students at the top of their class.
- Many scholarships are given out to entice students to attend a given college – not necessarily because they are the best students. Sometimes even just doing a good job filling out all of your paperwork might give you an edge over someone else! Some students who receive “merit-based” aid are actually below average academically.If you wonder why this is, ask yourself: If a college has a given amount of money to award, do you think they would rather give it all to one low-income student or divvy it up and attract five students who will be able to pay the rest?From the college’s perspective, it’s a no-brainer. What does it mean for you? It means – be sure to fill out all those financial aid forms (and don’t miss deadlines) – even if you think your student might not qualify for merit-based aid! Admit-Deny: Why your financial aid package may be telling you to go away.
- According to the article, 55% of all colleges – and 65% of private colleges – engage in a practice commonly called “admit-deny.” What this means is, the college will offer your student a financial aid package so small there is no way your family can pay for the remaining balance – expecting “that the poor financial aid package will dissuade them from coming at all.” Unfortunately, many families end up accepting these offers and taking on exorbitant amounts of debt to finance an education at one of these schools. We strongly encourage you to abide by our 50% debt ratio guideline when taking on student loan debt. That is: Your total student loan debt should not exceed 50% of your anticipated annual salary after graduation. (e.g. If based on your chosen career, you expect to graduate and get a job making $60k per year, you should take on no more than $30k total in student loans.) High-income families can still benefit from Federal aid.
- While it may not show up on your financial aid award, many wealthier families still receive support for college from the Federal government – mostly through various tax credits, deductions, and other advantages. While the average benefit from a college-related tax deduction may be smaller than the average Pell Grant, wealthier families tend to receive larger tax benefits – sometimes as large as a typical low-income family would receive through a grant or other need-based program. The amount you take out in student loans might not be the same as what you repay.
- Many people are unaware of the Department of Education’s newer student loan repayment programs based on income. These income-based repayment programs are available only for Federal student loans and allow borrowers to pay back their loans via a monthly payment schedule that depends on their income after graduating. If they have not finished paying the loans off within a certain time frame (e.g., 20 years), the remainder may be forgiven. This can be very helpful – especially in a tough economy, where even those with advanced degrees (and high levels of college debt) may struggle to find work or be forced to take a job that pays less than what they had anticipated.
Bottom Line
The colleges are creating leverage in their favor, so you need to do all that you can to educate yourself and your family on the college planning process so you can maximize any and all aid opportunities and put yourself in a better position to pay for any remaining balance that is not met in free money.
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