Playing the college financial aid game

Maine Times January 16, 1997

Jim J., a public school teacher, works two full-time jobs and his wife Karen works as well. Everything Karen makes goes toward paying for college. Daughter Mary attends Catawba College in North Carolina at a cost of $14,000 a year. Their son Aaron attends Hampshire College in Massachusetts at a cost of $28,000 a year. Aaron receives grants and loans, which cut the cost of Hampshire roughly in half, but Jim and Karen J. still find themselves faced with a $10,000-a-year bill for each of their collegians. “We manage to squeeze about half of that out,” said Jim, “and the other half we take out in loans.”

After 2 years at Hampshire, Aaron already has loans totaling $15,000. Mary owes $15,000 in her fifth year at Catawba. Jim J. is absolutely convinced that if he and Karen had somehow managed to save enough money to send their children to college, Aaron would not have gotten the amount of financial aid he has received from Hampshire.

Financial aid officials, however, call this idea the “savings myth,” and say that Jim J. could have reduced his overall costs had he saved more beforehand.

“If you've saved over the years, you may pay more out of pocket up front, but you're not paying as much in terms of loans in the long term,” said FAME's Hagerman, “because savings earn interest while loans accrue interest.”

“The myth about parental savings,” said Colby College financial aid director Lucia Whittelsey, “is that if you save, you're going to lose aid. But the need analysis taps assets [such as savings] very lightly—only 2 to 5 percent.”

The intricacies of the college financial aid formula fill a 1,500-page book, but there are two magic numbers that prospective college parents should bear in mind. After allowing for retirement, colleges expect families to contribute no more than 5.64 percent of their total assets per year to education. However, they expect families to contribute up to 47 percent of their adjusted annual income a year to education—in other words, assets are weighted only one-eighth as much as income when it comes to calculating the expected family contribution. So $10,000 in income, therefore, has about the same impact on the financial aid formula as $80,000 in savings.

As it happens, $80,000 is exactly the amount George G., a successful health care professional, had set aside to put his three youngest children through college. That $80,000 is almost four times what the average American family manages to save for college, but with three children going to college next year, $80,000 could easily disappear in 1 year.

George G. put his son Mark through Cornell several years ago. His son Jason is currently at Skidmore, and daughters Molly and Jennifer will be graduating from high school in June. Because he makes a very good living, George G. has never received any financial aid for his children's education. That may change next year.

He will be getting money for college “next year” vows Jeffrey Morrison, the college consultant George has hired to help his family negotiate the college admissions and aid process.

Morrison, who runs College Solutions in Portland, charges a flat fee to assist families in selecting a school and procuring financial aid. He said that College Solutions is now working with 300 families (including those of seven school principals) with an average income of $70,000. The average financial award his clients receive is $18,000, $14,000 of which is in grants—money that does not have to be repaid.

In the college counseling business for 19 years, 7 in Maine, Morrison has amassed a thick file of his former clients' financial aid award letters. He knows where the money is and which colleges offer the most aid, and he uses his knowledge of colleges' past awards to help his clients get the best possible deal.

“They can say whatever they want to Money magazine or Barron's” said Morrison, citing two popular sources of college financial aid information, “but they can't say it to me.”

Morrison also knows who colleges are looking for. Taking three financial aid letters from the file, for example, he points out that two female clients were offered substantially less aid money last year by Wheaton College in Massachusetts than a male client was. Wheaton would never say so, he said, but it has more women than men and is, therefore, willing to pay more to attract male students.

George G.'s son Jason was already thinking about transferring out of Skidmore for his own reasons, but, given that colleges seek to achieve geographic distribution among students, Morrison has suggested that Jason consider colleges on the West Coast that are more apt to provide financial aid for a Maine student—even a Maine student from an affluent family.