You're in. Now pay up
BY RACHEL HARTIGAN SHEA
How to compare aid packages, bargain, and more
When the bulky envelope from Ohio Wesleyan University arrived for Allison Wood on New Year's Eve, she ripped it open and pulled out a letter informing her that she'd been accepted early by her top-choice school. "I was so happy," says the recent high school graduate from Seven Hills, Ohio. She was even happier when the university came through with $11,038 in merit scholarships. But her parents, a civil servant and a substitute teacher, fretted about the remaining $18,832, particularly because their younger daughter will also be heading to college in a couple of years. Then Wittenberg University's letter arrived, dangling $3,500 more, for an out-of-pocket cost of $15,124 at the Springfield, Ohio, school. Now what?
If fall is the season of college dreams, springtime is when financial reality sets in. After admissions letters arrive, deposits are due May 1, and families across America must decide where they can afford to send their children to college. The calculus recently has been different from what many had expected. With the economy still recovering, stock portfolios deflated, and tuition rising at cash-strapped universities, families are finding it tougher to fund the college education they had planned on.
Schools such as Duke University in Durham, N.C., and Hollins University in Roanoke, Va., offer the supporting evidence: More families applied for aid this year–and more were eligible. And there's been a louder clamor than usual from parents unhappy with their award letters. "We're seeing an increase in appeals around loss of job, loss of income, and loss of bonus in particular," explains Seamus Harreys, financial aid director at Northeastern University in Boston. Meanwhile, Moody's Investors Service, a debt-rating agency, reports that the number of parents attempting to postpone tuition-loan repayments has doubled in the past year. Even the well-to-do are keeping an eye on the bottom line, notes Nancy Pankey, a college adviser at Miami Palmetto Senior High School in Miami. Many of her affluent students will enroll in Florida colleges to take advantage of state scholarships for high achievers. "In the past, these kids would have gone out of state," she says.
Add sticker shock to the finan- cial woes parents face. Universities, confronted with budget crunches of their own due to depressed endowments, higher energy and health insurance costs, and shrinking state support, are jacking up tuition. Public schools in states with budget shortfalls have instituted the most staggering increases: Tuition at Ohio State University in Columbus this fall has risen 18.9 percent to $5,691 for in-state freshmen and to around $15,000 for nonresidents, students at the University of Iowa in Iowa City have seen a 19 percent jump, and costs at the University of North Carolina-Chapel Hill have shot up 21 percent.
Even the less arresting percentage increases imposed by private schools still translate in- to huge sums: Barnard College in Manhattan, for instance, raised its price tag 4.5 percent, bringing this year's tuition, room, and board to $35,218.
Some schools are offsetting increases by boosting aid packages, but many cannot afford to do so, leaving parents in a quandary: How can they possibly satisfy tuition collectors as well as their starry-eyed children? U.S. News asked dozens of experts for tips on everything from comparing aid packages to finding last-minute cash.
One theme we heard over and over: Families have more options than they realize. Allison Wood's father exercised one when he called Ohio Wesleyan to see if it would sweeten her package. After re-examining the family's financial file and Allison's near-perfect senior-year grades, officials at the Delaware, Ohio, school added $1,000 to her scholarship–enough to seal the deal.
Study the offers
Barry Spiegel, a database administrator in North Tonawanda, N.Y., was bewildered. The financial aid packages arriving for his son, Josh, seemed vastly different–and for no apparent reason. The federal government estimated that the Spiegels could afford to pay $14,450 for Josh's schooling. Yet Pennsylvania State University-University Park offered Josh only a federal student loan of $2,625, leaving the Spiegels to come up with $20,375 of the $23,000 it charges out-of-state students for tuition, room, and board. Meanwhile, Arizona State University in Tempe judged that the family could pay $15,533 of its $20,783 out-of-state fee and offered a combination of loans, grants, and work-study for a final bill of $15,158. Spiegel just didn't get it.
When families enter the head-spinning world of financial aid, they sometimes feel as if they need Holmesian detective skills to deduce how and why one package differs so much from another. The first clue: Colleges come up with different estimates for what you can afford–the "expected family contribution" (EFC)–depending on which of your assets they choose to count. One college might conclude that you can afford more because you have so much equity in your home, while another counts your retirement savings and a third ignores both. Second clue: As Barry Spiegel can now tell you, some colleges, like Penn State, "gap" when they make awards: They figure out a student's need–and then don't meet it. Often they simply don't have enough money in the aid budget; sometimes they're saving it for students they really want. Which brings us to clue No. 3: Some schools use financial aid to attract desirable students. They might offer a top candidate all grants, while a package for someone less favored is larded with loans.
The real deal. Your first step in deciphering packages should be to determine what each school really costs. That price tag includes tuition, fees, room, and board–the charges for which you will receive a bill from the college–plus books, personal expenses, and travel. Next, figure out how much each college will cost you. Take the total cost, and subtract the free money, which includes federal aid such as the Pell and Supplemental Educational Opportunity grants, state grants, and institutional grants and scholarships. Then subtract the anticipated earnings from a work-study job, which is usually paid directly to the student and covers personal expenses. The remaining dollar figure is what you will have to pay, either upfront or through loans. This should be your real point of comparison between aid packages.
Next, examine which loans each college is offering you. Federally subsidized Stafford and Perkins loans, which are available to families with demonstrated financial need, offer extremely low interest rates and generous grace periods after graduation before interest accrues and repayments begin. Watch out if the package includes unsubsidized Stafford loans and funds from the federal PLUS (Parent Loan for Undergraduate Students) program. Neither requires demonstrated financial need, and both begin accruing interest as soon as the loan is disbursed. "Colleges put federal PLUS loans in to make financial aid look better," contends Rick Darvis, an accountant in Plentywood, Mont., who specializes in financial aid.
Finally, find out whether the aid will be renewed each year. Consider the cautionary tale of Laura Ng, who spent her freshman year at the University of Maine-Orono. The 18-year-old from Ames, Iowa, chose to enroll at Maine because it wouldn't cost her a dime: The $20,738 cost of attendance was completely covered by grants and scholarships. So she was shocked when she received news of her package for sophomore year: Her costs were still covered, but $8,000 in grants had been converted into loans. "Our goal is for students to receive the same dollars," says financial aid director Peggy Crawford, but given limited funds "we can't guarantee the same package." Ng decided to transfer at the end of the year: "I definitely would not have come here," she says, "if I knew they could take away the grants."
Ask for a Fresh Look
There is a right way and a wrong way to ask for more money, says Kathy Ruby. "I wouldn't say negotiate," explains the director of financial aid at St. Olaf College in Northfield, Minn. Ask her to re-evaluate an aid offer, however, and you'll get another response entirely: "We've certainly been doing a lot more of that."
If you're disappointed in the size of your financial aid package, the good news is that aid officials frequently have the power to make it grow. Walking into an aid office with another offer in hand and an "ante up" attitude, however, won't garner you any sympathy. It's a great idea to tell schools that you've received alternative offers (Carnegie Mellon University in Pittsburgh, for example, explicitly encourages admitted students to fax in aid packages from other institutions), but the key to success is giving the college a substantive reason to reconsider its offer.
"If someone says, 'Well, I got this award from Emory, and their award is based on need, and your award is based on need, but it appears that you guys are way off in your assessment of what my need is,' " financial aid officials will be open to a second look, says Rodney Oto, the aid director at Carleton College, just a few miles across town from St. Olaf. Some 55 percent of students at Carleton–where the sticker price next year will be $32,400–qualify for need-based aid. The value of the average aid package: $19,800, which is typically made up of $15,200 or so in outright federal and school grants and around $4,600 in low-interest federal loans and work-study jobs. The average family income of those qualifying for aid, says Oto, is $64,765.
It may be that some of your family expenses are invisible on federal aid forms. Bates College in Lewiston, Maine, considers costs families incur providing nursing home care for elderly parents, as well as changes in job status that may happen after the forms are filed. "Families apply for aid in December," says Leigh Campbell, Bates's associate director of student financial services, "but a lot can change in the interim." Some aid officers say they might even consider factoring in a younger sibling's upcoming class trip to Europe. And, "if there's a younger sibling go- ing to a private high school, we'll take a look at that," says Ruby. "We think it's a legitimate extenuating circumstance."
Bible camp. Megan Vig's parents didn't hesitate to bring their concerns to Oto when they received their aid award for their daughter's freshman year. Megan's mother, Pam, works half time as director of children's ministries at a local Lutheran church in Northfield, and her father, Barry, is an air traffic controller. With one son a college sophomore and another a high school freshman, the family felt it needed about $3,000 in addition to the $16,000 aid package Carleton offered. "We thought, 'Oh my gosh, we could probably manage this, but our younger son wouldn't be able to go to Bible or basketball camp,' " Pam says. They got an additional $2,500. "We learned not to take that first offer as etched in stone," she says.
But not all comers will be warmly received. Students with stellar grades and accomplished athletes, for example, tend to have a bit more bargaining power. And applicants to state schools tend to find less flexibility than at private universities. Families that hire a financial aid consultant to do their bargaining are apt to find the conversation over before it begins. Many schools refuse to barter with consultants on the grounds that doing so would violate the privacy of families.
Finally, best not to mistake financial aid officers for pushovers. "I've had people say to me, 'Well, look, we're paying for four cars,' " says Oto, recalling a particularly far-fetched plea. "That isn't going to fly." -Anna Mulrine
Get to Work
Although negotiating with the aid office is an increasingly common practice, getting a part-time job is still the most popular–and reliable–way for students to better their financial situation. It's a simple strategy, says Dallas Martin, president of the National Association of Student Financial Aid Administrators: "The more students can earn on their own, the less they'll have to borrow." In fact, nearly 80 percent of undergrads work part time while in school, according to a recent survey.
How much can you expect to earn? For starters, an on-campus job at a school in the middle of a city generally pays more than the same job in a small town–because city schools have to compete with urban employers for workers. At Kansas State University in Manhattan, population 38,000, most students earn the minimum wage, $5.15 an hour, whether they are working the cash register in the student union, filing forms in the admissions office, or checking out books at the library. By contrast, students at George Washington University in Washington, D.C., average $7 per hour. Still, even in small towns students can earn as much as $7,000 a year if they're willing to work full time during the summer, says Joe Paul Case, director of financial aid at Amherst College in Massachusetts.
Higher wages naturally are available to undergrads with special skills. If you're proficient in Web site design or have laboratory experience, for instance, you may be able to land a position paying $8 or $9 an hour. As a senior at Wesleyan University in Middletown, Conn., Heather Alderfer made $10 an hour at the information technology service's help desk, managing the 20-person staff. And it's not just techies who command the higher salaries. Justin Kite, a senior at Pepperdine University in California, made $8.50 an hour last year as a lifeguard, a job that requires CPR and first-aid training and lifeguard certification. To see what jobs are available at a school, check out the career center's online search tools, which typically sort positions by skill set as well as salary.
Overdrawn. Although it's tempting to try to bring home the biggest paycheck possible, working long hours can interfere with your studies. "One of the problems we're seeing is that kids are working too much," says Clare Cotton, president of the Massachusetts Association of Independent Colleges and Universities in Boston. Two recent surveys by the U.S. Education Department show that students who work more than 15 hours a week during the school year are less likely to complete their degrees than those who work up to 15 hours a week. Undergrads who work up to 15 hours a week also tend to have higher grade-point averages than those who work longer hours. According to Cotton, students who devote too many hours to a job are less successful academically not only because they don't have time to hit the books but also because they find it harder to connect to their school.
Toiling off campus often only deepens a student's sense of detachment, so experts advise seeking on-campus employment. According to Alexander Astin, director of the Higher Education Research Institute at the University of California-Los Angeles, students who work for their school are "more likely to stay in college, more involved in extracurricular activities, and tend to do better in school." In her sophomore year of college, Lelia Wells, now a senior at Penn State University, was lured by higher wages to take a sales job at a children's clothing store at the local mall. But she found it to be a struggle. "[My bosses] were always pushing me to work more hours," she says. Last year Wells looked for work on campus and took a job for 50 cents less an hour answering questions at the career services center. "On-campus employers are just way more understanding when it comes to exams and studying." - Justin Ewers
Look for Loans
You've reviewed a college's aid offer a dozen times, pleaded with the financial aid officer, and even asked your wealthy great-aunt for money, and you still come up short. Don't worry, families still have plenty of options, ranging from the simple and smart–spreading out college payments over a year–to the drastic and misguided–raiding the retirement nest egg.
To start, parents might think about signing up for a tuition payment plan. These arrangements allow you to pay the room, board, and tuition bills at your child's school in monthly installments instead of penning big checks at the beginning of each semester. Making many smaller payments (and eating a lot of macaroni and cheese during the college years) can keep some families from having to take out a loan. The plans don't charge interest but do require you to pay an annual enrollment fee of approximately $50. At least 2,000 schools now offer the plans. Some institutions have devised their own, but most partner with outside companies like Academic Management Services in Swansea, Mass., or Tuition Management Systems in Newport, R.I.
If you find that you need to borrow, look into the Department of Education's PLUS program. The loan is available to any creditworthy parent and can be used to cover all costs of attending an accredited school, including books and living expenses. The interest rate of the loan fluctuates over its lifetime but is capped at 9 percent, unlike the rates at private banks, which broke 10 percent two years ago. Right now, PLUS offers a rate of 4.86 percent, an all-time low for the program. Other advantages of going with a PLUS loan? The program guarantees that all outstanding debts will be covered if the parent who signs the loan is permanently disabled or dies. And come tax time, families earning less than $130,000 can take a deduction on the paid interest.
Higher-income families may find that borrowing against their home makes more sense than taking out a PLUS loan. Many couples earning considerably more than $130,000 a year can deduct at least some of the interest on a second mortgage or home equity loan. Allan Watnik, 51, of Pittsford, N.Y., opted for a home equity line of credit on his three-bedroom colonial to help pay for his son's education at Wheaton College in Illinois. The loan allows Watnik to borrow (and pay interest on) only the sum he needs each semester. It's easy, he says; "they give you a book of checks."
Most financial planners would approve of Watnik's choice of a home equity loan. While second mortgages have fixed interest rates, they disburse the money in a lump sum, and, as a result, parents can end up paying interest on the costs of their kid's senior year as early as the start of his or her freshman year.
Pay later. Another borrowing option is a private student loan. These usually cost more than PLUS or home-based loans because they tend to have higher interest rates. But some families prefer them because the students rather than the parents are responsible for paying them off. Moreover, private loans tend to offer more-flexible repayment terms. For instance, payments on private loans often can be deferred until after graduation, while families must begin repaying each year's PLUS loan soon after the end of the school year.
Some universities team up with a bank to offer their undergrads private loans. The University of Notre Dame launched a loan program five years ago in cooperation with Citibank that now lends to 12 percent of the student body. The loan is similar to CitiAssist, Citibank's student loan, except the terms are better, says Joe Russo, director of financial aid at the Indiana school. In the spring quarter of 2002 the school loan's interest rate was 4.2 percent, while the CitiAssist rate was 5.25 percent. The rates on many of these private loans are ultralow now, but they're almost sure to go up; that's one reason many students stick with federal Stafford loans with their interest-rate caps.
"Raiding your 401(k) should be done in desperation only," says Judy Miller, president of College Solutions, a financial planning firm in Alameda, Calif. If you don't repay a loan on your 401(k) within five years, the feds will hit you with a hefty early-withdrawal fee. And if you lose your job, in most cases the 401(k) loan must be paid back immediately. Sound bad? Miller says the worst thing about borrowing from any retirement funds, including IRAs and life insurance, is that even if you repay the money in full, you've lost out on the returns you would have amassed over the years if you'd kept the fund intact. So keep that nest egg safe, and you can dream about the ways you'll spend it while you scrimp to pay for college. -Ulrich Boser
Credits for college
Nothing beats advance planning when it comes to financing college. But four tax lifelines can help save those who haven't looked ahead. Two credits and a couple of deductions can pick up part of the tab for tuition by trimming a parent's or student's income tax bill–although caps on how much income you can have, among other rules, may be a barrier. According to William Geideman, a tax preparer in Santa Ana, Calif., "People come in with notices from schools about these benefits but often are disappointed to find they don't qualify." Do you?
Hope credit. Students in the first two years of college can qualify for an annual tax credit of up to $1,500: 100 percent of the first $1,000 in tuition and fees plus half of the next $1,000. Every $1 of credit reduces by $1 the tax you owe or boosts by $1 the refund you get. Parents can take the full amount for each child in school. Undergrads who support themselves and incur tax can take the credit on their own returns. A snag for some parents: The credit phases out for couples with $82,000 to $102,000 of adjusted gross income and for a single parent earning $41,000 to $51,000.
Lifetime Learning credit. This stingier credit can be used after the first two years of school and is for 20 percent of the first $5,000 of tuition and fees paid in a year, for a top annual credit of $1,000. The same income caps apply as for the Hope credit, but parents can't claim more than $1,000 per year even if they support more than one upperclass student. For tuition bills paid in 2003, the credit will apply to $10,000 of costs–a top benefit of $2,000.
Tax deductions. Families whose income or number of kids in school limits their use of the credits may be able to deduct up to $3,000 of total annual tuition, starting with 2002 costs. A deduction reduces the amount of income hit by tax and thus is less valuable than a credit, which directly offsets tax. But the deduction is available until a couple's income hits $130,000 and a single taxpayer's income hits $65,000. In 2004, more people will be eligible, and the top deduction will rise to $4,000. A student can't get both a deduction and a credit.
Borrowing to make ends meet? Here's a break that can pay off as you pay back the loan–as long as the funds are used for tuition, room and board, transportation, and other educational items. Up to $2,500 of interest a year may be deductible. -Leonard Wiener
