The Jones Family

Mr. And Mrs. Jones are the parents of only one child, Penny, who is a 17-year old senior and who is planning to attend a 4-year college. Both parents work, Mr. Jones earns $90,000 and Mrs. Jones earns $100,000. They have no liquid assets to speak of, but their home equity (value of home less mortgage) is roughly $300,000. Penny has accumulated $16,000 in her personal savings account from grandparent gifts over the last five years. She scored 2200 on the SAT, her high school GPA is 4.0 on a 4.0 scale, and she ranks at the top of her class.

Penny hopes to attend a nationally recognized college or a school with broad name recognition such as the "Ivies", and she intends to major in business administration. She does not want to discuss any other type of institution, but she is open to location.

In preparation for her college admission process, the Jones' have filed the Free Application for Federal Student Aid (FAFSA) and their Student Aid Report (SAR) shows an Expected Family Contribution (EFC) of 59,500.

Question: We have just received our SAR with the high EFC! Penny's boyfriend went to college last year and his parents told us that if we get rid of Penny's assets, our EFC would decrease and we would get financial aid. Is that true?

Answer: That's only partially true. The Federal Methodology would reduce your EFC by the portion that represents 35% of the student's assets - or about $5,600. This would result in your EFC being lowered from $59,500 to $53,900, but the EFC is still higher than the cost of attendance (COA) of the schools Penny is selecting. Since need-based financial aid is based upon the COA minus your EFC, Penny would still not be eligible for need-based aid. On the other hand, Penny should investigate both local and institutional merit scholarships, which are not typically based upon need or EFC values.

Question: Our assets are very limited. We've been trying to pay off the house before Penny goes to college and all our extra money went into house payments. We had to replace the roof and sheetrock due to toxic mold, so we now have a home equity loan. We can't just write out a check to pay for her college education if the cost of attendance (COA) is $35,000! What are our alternatives?

Answer: Actually, by making a substantial investment in your home, you have created a significant asset in the form of home equity and you might consider borrowing against this asset as a means of funding college expenses. If this idea is unacceptable to you then the next step is to research ways of reducing your student's educational expenses, possibly by finding a quality college at a lower cost. Unless you're willing to part with $140,000 over four years, stay away from the high dollar colleges. Also, many colleges like the Ivy League schools only award financial aid based on need. Since you know that you will not qualify for need-based aid, you probably won't want to consider these schools in your list of options. On the other hand, there are many high quality colleges with national and/or regional name recognition that award aid based upon merit instead of need. According to the Peterson's "College Money Handbook", the University of Pennsylvania reported their cost in the most recent study to be $37,250 and this university awards no institutional aid based on merit. Compare this to Ohio State University, which reported a cost of attendance for the same period of time to be $23,106 (or $14,144 less per year). Ohio State also awarded over $30 million in institutional non-need-based aid. In addition, they have a Special Ohio State Buckeye Scholarship for out-of-state students who rank in the top 5% of their class. As far as how they compare in academic or educational quality, both schools are ranked in a report of the top 25 Schools of Business in the United States.

Question: So, are you saying that by going with a less expensive college we could save more than $55,000 over 4 years and Penny could still get a high quality college education, even if she doesn't think that Ohio State has as much name recognition as U Penn?

Answer: Correct. And there are many other colleges as well that have opportunities for your daughter to pursue without you going educationally bankrupt.

The Garza Family

Mr. And Mrs. Garza are married with three children still at home. Raphael is a senior in high school, planning to go to college; Julia is a tenth grader and Michael is in the first grade. They have two daughters, ages 25 and 26, who are supporting themselves. Mr. Garza earns $65,000 annually and he has accumulated savings of $80,000. Raphael received 1750 on his SAT, and his high school GPA is 3.0; he wants to major in international business and focus on European languages, primarily German. Location is no problem.

The Garzas are all Maryland residents and Raphael hopes to attend the University of Maryland.

Question: We submitted the FAFSA and it resulted in an EFC of $10,190. With Raphael's SAT score he won't be admitted to the University since their admission standards require around a 2050. He did get admitted to a good private college in Washington but they didn't offer much financial aid. What are our options?

Answer: Before we talk about the money, let's concentrate on Raphael's academic goals. If he wants to major in international studies with a concentration on German culture and languages, consider another plan. The University of Maryland, and many other good state universities have what they call University Colleges or "Extension-adult centers". In fact, Maryland has one of the largest University "extension" programs with campus centers all over the world. They have an international business management program in Germany. Raphael could actually live in Germany, pay in-state tuition, possibly receive a Maryland State Grant and be able to study in their international business management program.

Question: What about the low SAT scores?

Answer: University of Maryland, University College looks at the whole student profile rather than concentrating exclusively on the SAT scores.

Questions: What about the money?

Answer: Well, how about using some of your assets to get involved with the state's I-529 plan? The internal revenue's code I-529 plans are sometimes called (QSTP) Qualified State Tuition Plans. Simply stated, these plans allow you to invest with tax advantages to assure that funds will be available when your younger children are ready for college.

The Smith Family

Ms. Smith is single, has custody of three children, works part time and receives a limited amount of alimony and child support. Mr. Smith has remarried a woman with children of her own. Divorce papers omitted discussing college commitment and specifically stated that child support would stop on each child's eighteenth birthday. However, Mr. Smith has a stable relationship with his son, John, who wants to attend a nationally renowned engineering college. Mr. Smith makes over $150,000 each year and he has assets of $250,000. More importantly, he is willing to help to pay for John's college. However, he will not contribute more than the equivalent of 50% of the cost of attendance at the state university. John wants to attend a university that is highly recognized for its engineering program and he has saved $6,000 for college. All the Smiths live in Louisiana.

Question: My son, John, is in the Spring semester of his junior year of high school. He wishes to attend a good college of engineering, one that has a good academic record. He has scored 2200 on his pre-SAT and he has a GPA of 3.9. We have been told that we will qualify for a Pell Grant of $4,050 next year and will probably receive other Federal and State aid. However, some of my son's college choices require the College Scholarship Service (CSS) Profile. If my ex-husband has to complete the Profile Non-custodial Parent's Statement, I'm sure we will not qualify for anything other than the Pell Grant and a Subsidized Stafford Loan. We did a preliminary calculation using his income and our Profile Expected Family Contribution exceeded the total cost of attendance at the most expensive college John is considering. This fact was confirmed when we visited several of the colleges. We are at a loss. What do we do next?

Answer: Many recognized engineering colleges do not use the CSS Profile. Johns Hopkins University, Carnegie Mellon University, Drexel University, Georgia Institute of Technology, and the University of Pittsburgh are but a few. So, why not first look at colleges that don't use the Profile?

Question: We can do that, but we will still need financial assistance.

Answer: You are correct, mainly because many public universities are not funding out-of-state students very well. Consider a "worst-case" scenario. Let's say John wants to attend an out-of-state school. When you include the out-of-state tuition at a public school, you are probably looking at a cost of around $20,025 for next year. Based on the Estimated Family Contribution (EFC) from the FAFSA, the out-of-state college will award you the $4,050 Pell Grant, and a subsidized student loan of $2,625 for a first year student. Additionally, they will probably offer, a college work-study position which will enable John to earn $1,600. The Pell Grant, the loan, and the job will cover $8,275. John should be able to save $1,000 from next summer's earnings and we can use $2,000 from his past savings for each year of college. This brings us up to $11,275 in resources. You indicated that your state university's cost is about $8,000, so Mr. Smith will probably contribute approximately $4,000, bringing the resource total to $15,275. To cover the out-of-state college's costs of $20,025, you need about $4,750 more than your current resources afford. Probably the easiest way to cover the remaining $4,750 is for you to borrow that amount through the federal Parents' Loans for Undergraduate Students (PLUS) program. You must pass a credit check to borrow under the PLUS program, and the 2004-05 interest rate is 4.17%. However, if you wish John to assume the responsibility for borrowing, as opposed to yourself, the remaining $4,750 could be obtained through an alternative student loan. Alternative loans are provided by banks and other lending institutions, and it is in this sense they are "alternatives" to the federal loan programs. (They are also frequently referred to as "private" loans.) Alternative loans provide a wide variety of repayment options based on different interest rates, and one option is that payments on John's unsubsidized loan can be deferred until six months after he leaves school, similar to the repayments provisions on his subsidized loan. Finally, the $4,750 could be borrowed using both the PLUS and alternative loan programs, with part of the money coming from each. If you decide to take a PLUS loan, repayment commences 60 days after the loan is entirely disbursed for the year.

The Tucker Family

Mr. Tucker divorced his wife 15 years ago and moved to the Pennsylvania. Ms. Tucker received custody of their two children and they remained in Washington, where Ms. Tucker began to work in a law firm. Bonnie is a senior in high school and expects to enroll in college after graduation. Ben is in 11th grade and also plans to attend college. Bonnie has average SAT scores, and a GPA of 3.2; she plays intramural soccer and lacrosse. Bonnie is determined to move out of the house for college, and she has saved $12,000 for this purpose. Mr. Tucker's only contact with each of his children is a holiday card and $10 each year, however Mr. Tucker's mother left her only two grandchildren with a modest trust fund upon her death.

Question: My daughter is interested in attending college and does not want to live at home. In addition, we are not going to qualify for aid because I make too much and my daughter has a trust fund that we can't use until she turns 28. When the FAFSA looks at all of this and we have already calculated that there is no way that we will qualify for aid. We can't show need, and Bonnie doesn't have a long record of student activity or leadership. My ex will not have anything to do with paying for college and I have no extra funds to cover an out-of-state college. How can Bonnie go off to college?

Answer: You have a tough situation, but let's look at your priorities as well as Bonnie's priorities. Bonnie wants to live on campus, preferably not close to home, and you require that the school expenses be affordable. One option to consider is a state college in Mr. Tucker's resident state, Pennsylvania. Pennsylvania allows out-of-state students to attend the state college if one of the parents works in Pennsylvania and pays taxes. The public colleges in Pennsylvania are relatively inexpensive when compared to other state schools. The average cost of tuition, fees, room and board at Penn State is around $15,500 according to Peterson's College Money Handbook.

Question: I can't just write a check for $15,500! I don't want to sound hopeless, but what can we do? My credit rating is the pits.

Answer: Maybe your poor credit can be turned around and used to an advantage. Bonnie's eligibility for a first year student loan of $2,625 does not depend on your credit status. On the other hand, if you apply for a PLUS loan and you are rejected, then Bonnie can apply for this amount and be found eligible for an additional $2,625 in unsubsidized loan dollars for her freshman year. Each of her college years, if you are rejected for a PLUS loan, Bonnie could apply for and be found eligible for additional amounts: $3,500 her sophomore year, $5,500 her junior year, and $5,500 her senior year in college. In addition she should be able to save at least $1,000 during the summer months, but she will probably have to move back home so that her earnings are not used to cover living expenses in those months. From her savings you can use $3,000. Add this to the two student loans ($2,625 and $2,625) and her summer earnings of $1000 and you now can expect $9,250 for her first year. You still are short $6,250. Can you meet the rest of this shortfall from your own income? Remember that most colleges offer installment plans.

Question: My office has a fringe benefit that pays up to $3,000 total for employees' and employee dependents' college education. I can use it all in one year, then, I can pay the remaining $3,250 balance from my income. What about the next year? And what about Ben?

Answer: First, apply for the PLUS loan so that if you are rejected, the college will be aware of this before Bonnie applies for her unsubsidized loan. Here is the toll free number to call for a pre-approval through the Signature Loans Program Customer Assistance Center: 800-695-3317. And you are absolutely right to be planning for the future. Can you also claim the $3000 benefit for additional children, or is it a $3000 per employee family benefit? Also, does Ben excel in any area? Talk with his counselor about which of his talents has the greatest scholarship opportunities. Remember that even though you may not be eligible for need-based aid when Bonnie goes off to college, your need analysis will be different when you have two children in college and you may be eligible for additional aid at that time. Also, talk to your children's trust officer about the details of their trust funds; sometimes there are clauses that allow a portion of the trust to be used for college education expenses.

The Khandahar Family

Dr. and Mrs. Khandahar are married, each earning high incomes in the medical field and are approaching retirement. After their bankruptcy four years ago, they have few assets left which are not in a qualified retirement plan. They have two sons in high school. Their youngest son, Arun, is a bright freshman who hopes to go to medical school. The oldest son, Ruchi, is a junior and plays baseball on the high school team as well as in a city league. Due to a shoulder injury early this season, he no longer expects to receive a college athletic scholarship. Ruchi has a GPA of 2.5 and SAT score of 2050. He is undecided about a college major, but wants to stay in the south, hopefully attaining a spot on the baseball team as a walk-on.

Question: Our son wants to attend college but had expected to go to college on an athletic scholarship, so he spent little time studying in high school. He has not done any research on colleges because he anticipated accepting the best scholarship offer. He still doesn't really care where he goes; he is leaving it up to us to find a college and pay for it. We are of the opinion that we don't want to put much investment in his college education until he becomes more serious about this whole process. Are we right?

Answer: Let make sure that we are all on the same page. You want him to have an investment in this process and you want to support his wish to be on campus in the south.

Question: Correct! Out of the house and on campus. We feel that the local community college is where he belongs but if he doesn't leave then we will. We love him but he just doesn't want to do his fair share of research in this college discovery business. Is that fair?

Answer: Think about this option: there is a program that your state participates in called the Academic Common Market. It is under the organizational umbrella of the Southern Regional Education Board and you can find out more at http://www.sreb.org/. There are 16 states that participate in this program which enables students to pursue unique majors offered at public institutions in the other SREB states while paying in-state tuition. There is a similar group in the Northwestern U.S. referred to as WICHE (Western Interstate Commission for Higher Education) http://www.wiche.edu/.

Question: Who pays the tuition and how can we get him to participate in paying for the remainder of the costs?

Answer: Before I respond let me just say that if he doesn't know what he want to major in and isn't uptight about location, let him select a major that qualifies in this program and go for it. Just key in the web site and they will tell you all of the majors offered for the students in your state. Your home state pays the out-of-state tuition bill and you have to pay for the rest of the costs. Here is a suggested scenario for getting him involved: Tell him if he wants to go to college that you will pay for his last two years at one of these Academic Common Market schools if he has a 2.75 or better. To pay his first two years, he will have to take out a Stafford or Direct Student loan of $2,625 and an alternative loan to make up the difference. Both loans have deferred payments until six months after he leaves college. Let him know that if he doesn't make it the burden is on him to pay the loans back.