DON'T LET COLLEGE COSTS RAIN ON YOUR RETIREMENT THE $150,000 NIGHTMARE FACING EVERY PARENT IS HOW TO GET JUST ONE KID THROUGH COLLEGE. WAKE UP, PEOPLE! THERE'S FAR MORE HELP OUT THERE THAN YOU EVER THOUGHT POSSIBLE. NO WAY DOES COLLEGE HAVE TO BE AN EITHER-OR WITH THE RETIREMENT OF YOUR DREAMS.
(FORTUNE Magazine) – Ever wake up in the wee hours with your mind churning along the following lines: Your kids are now how old? Boy, college isn't that far off. Assuming an annual inflation rate of 3% or 4%, within ten years you may have to be ready to fork out $150,000 to get each one through a good school...In after-tax dollars... Fat chance that you'll be able to cover that out of your current income. You're already way short, even assuming an annual raise of 4%. And that's assuming college prices don't increase faster than inflation, which everybody knows is hogwash. Fact is, what college costs really do is leave inflation in the dust. Plus, there'll be three years when the kids will be in school at the same time...
Welcome to the national nightmare. Paying for college has become one of life's true horrors for thinking parents, a phrase every mom and dad knows can itself sometimes seem like an oxymoron. But before you freeze up or freak out completely, take a look around you. The folks down the street, along with millions like them, are no smarter or richer than you but still managed to get their kids through school. They did so, moreover, without taking themselves to the cleaners--or, just as important, without pillaging what they've set aside for retirement.
You can do this too. For starters, don't rule out applying for financial aid from the college your offspring have really set their hearts on. In other words, if you believe the combined salary of you and your spouse squeezes you out of the ranks of the needy, think again. Yes, most college scholarship funds are indeed targeted at families with annual incomes of less than $30,000. But typical aid recipients are in the $50,000 to $70,000 range, and people earning much more than that can also receive significant help. At Amherst, for example, where tuition plus room and board totals $26,270 a year, 50 families earning between $90,000 and $105,000 last year received some $13,000 apiece. More than half of that was grant money; the rest came in the form of low-interest loans or student employment. Sixteen families making over $135,000 also qualified as "needy" and got an average annual $11,000, about half of it in grant money. For both groups, the odds of getting aid were good. Of the applicants in the $90,000-plus group, 79% received help; in the second group, 32%.
If this doesn't remove that feeling of being a vulnerable economic speck crunched by a gargantuan college dollar sign, keep reading. Even if you earn way over $150,000 a year, you can take steps that will keep down the cost of sending the kids to college--money-saving strategies that will also enable you to plan a richer retirement.
KEEP THEIR NOSES IN THE BOOKS. Many excellent schools offer generous scholarships to kids at the top of their high school class, regardless of financial need. The lesson, says counselor Jim Alexander, drawing on his three decades helping the college-bound at Highland Park High School, near Chicago: "The best way to get money is high grades."
Even though a couple of dozen or so top schools--such as the Ivy League and elite places like Amherst--award no merit scholarships, most other colleges do. Marquette University in Wisconsin tells prospects, "There has never been a better time to apply for scholarships." Students who score in the top 5% of their high school class become eligible for grants of $5,000 per year, a 38% discount from the $13,010 tuition. In addition, those with SAT scores of at least 1300 can try for ten full-tuition scholarships, awarded after interviews with a selection committee. Separately, students who are state residents and score in the top 10% of their class with SATs of at least 1200 can compete for four scholarships covering full tuition and contributing $4,500 to $5,000 toward living expenses. Fully half of Marquette's 1,700 freshmen get some merit aid.
At Boston University, merit money was doled out to some 400 freshmen from families well off enough to pay all costs. The biggest award BU offers is full tuition plus fees--worth more than $19,000. But the bar is high: Winners ranked in the top 2% of their class, with a grade-point average of 3.9 and SAT scores of 1420. Case Western Reserve last year awarded 1,200 merit scholarships. The best of these covered full tuition, $15,700, and went to students in the top 10% of their high school class with SATs of over 1450. Although Stanford doesn't give merit scholarships as such, top students admitted on need-based aid get more in grants and less in loans and work-study than do their less-accomplished classmates.
Consider the alternative: If your kid's high school academic record is so-so, he or she might get admitted to college but receive no aid whatsoever, regardless of how strapped you are. Roughly a quarter of those admitted to Boston University won't be offered as much money as they require according to the formula colleges use to calculate how much aid you need. Says BU's financial aid director, Barbara Tornow: "We make it clear to students that the decision is based on their academic performance. The best students will receive whatever they need to attend." Only a few, highly selective schools like Swarthmore, with its $500 million-plus endowment, meet the financial needs of all admitted students.
PLAY THE ACADEMIC FIELD. "The price competition from flagship public universities offering merit scholarships has become outrageous." These words from William Stanford, aid director at Lehigh University, signal an opportunity for bargain-hunting parents: Apply to schools that are feeling competitive heat--Lehigh, for instance, tired of losing upper-middle-class students to Penn State, whose $9,472 overall annual cost looks cheap compared with Lehigh's $26,800. So this year the pricier school began awarding its 100 best applicants merit scholarships that ranged from $5,000 to $7,000 a year. Not to be outdone, nearby Lafayette College (total cost: $27,221) has initiated a program providing selected students with $10,000 scholarships, college-funded study abroad, and $1,000 research grants.
Similar competitive wars are raging in New York. Beginning this fall, the University of Rochester will award $5,000 to every registered freshman who is a New York State resident, no strings attached. The objective: to close the price gap with the state university and "make parents open their eyes to Rochester," says Ryan Williams, director of financial aid. Bard College, north of New York City, goes further: If your child is among the top ten students in a public high school anywhere in the U.S., he or she can attend Bard--costing $27,069 a year--for the same price charged by your state university. The average award for the coming year was an impressive $19,600.
ENCOURAGE YOUR FAMILY JOCK. We're not talking Heisman Trophy here. If your kids have splashed into water polo, for example, they could get a grant from Stanford or Berkeley, which are among the schools offering water-sport scholarships. At Stanford, the award can run as high as tuition plus all other costs, totaling $27,510 a year. At Northwestern University, which allocates virtually all its money on a need basis, sports such as softball provide a ticket to merit aid for half the total $24,921 cost of attendance. Football typically covers the full tab. Some 275 students received athletic scholarships last year.
Look for the oddities. Your kid may have an interest--say, bowling or badminton--that you never considered a bankable item but which could be parlayed into college dollars. Lake Erie College in Ohio awards $2,000 equestrian scholarships. Northwestern and some other schools have a special scholarship for financially needy students in the top 25% of their class who have been golf caddies for at least two years.
Especially encourage your daughters in any sport. As University of Texas at Austin financial-services director Lawrence Burt points out, "Sports scholarships are much, much, much more prevalent for women than a decade ago." One example: Notre Dame. It awards women volleyball players scholarships that cover not just tuition but room and board and fees as well, valued at $22,600. An increasing number of such scholarships are going not only to young women who excel in the more obvious pursuits like softball, basketball, and lacrosse, but golf and--at Marquette--even riflery. LEARN TO LOVE THOSE VIOLIN LESSONS. Practicing hard off the field can also pay off. Boston University could dip into the scholarship pool it uses to fill out its orchestra and hand thousands of dollars to your bassoon-playing child, for example. Your trombonist could pick up a similar sum by joining the University of Texas band. Many colleges seek students talented in music, along with art and theater. THINK BEFORE CROSSING STATE LINES. Don't overlook state schools. Some provide quality education for bargain-basement prices, provided you live there. A Michigander's maximum tab for tuition and all other costs at the highly regarded University of Michigan comes to just over $13,000, vs. nearly double that for nonresidents. What's more, if even that is too steep, the school will provide full financial aid to needy in-state residents. Merit scholarships up to $7,500 are also available to state residents, but the competition is tough: Winners sport nearly straight A's in high school. Other scholarships are awarded for athletics and the arts. Similarly, the University of North Carolina costs its residents a little more than $7,500, half the sum charged out-of-staters. Californians pay a total of $13,474 to attend topnotch Berkeley, vs. $21,173 for everybody else.
Some private schools also give bargains to kids from the home state, but wander a bit farther afield. Duke, in addition to meting out full tuition to top-ten winners of North Carolina's mathematics contest, opens other special scholarships, paying 75% of tuition, to residents of South Carolina as well. Marquette has separate scholarships worth $2,000 a year targeted at students from major Midwestern cities such as Chicago, Cleveland, Detroit, and Milwaukee.
Tempted to move just to save on college costs? You'll have to plan well ahead, since a lot of the old loopholes have been closed. Most state schools require you to have lived in the state for 12 continuous months before the start of classes if you want to be considered a local. Other requirements, such as voter and auto registration, must be met too, and you have to show intent to make the state your permanent home.
SEARCH OUT PRIVATE SCHOLARSHIPS. All kinds of civic groups, private foundations, professional organizations, and corporations--maybe even your employer--give out scholarships. Some companies look beyond their own payrolls, of course, most notably Westinghouse. Last year 39 students won these science awards, which run from $1,000 to $40,000, covering four years of education. Coca-Cola awards 150 scholarships annually, including 50 for $5,000 a year.
More typical, however, are the $1,000 awards given out by such local outfits as the Kiwanis, say, or Elks club. Richard Black, Berkeley's financial aid director and author of the upcoming Complete Family Guide to Financial Aid, correctly calls such prizes "the icing on the cake, not the cake itself." That icing gets sweeter, of course, if your high-schooler can put together a string of these scholarships. At Duke, financial aid officers still talk of the student who several years back won 11 individual awards, each for about $1,000.
Manuals chock-a-block with information on private grants are available in libraries and bookstores. Or check out your local high school, which may have accumulated files full of scholarship information. Some high schools, like Highland Park near Chicago, are set up to enable their computer-wise kids to plumb all kinds of scholarship data. For example, students may enter the facts that they are of Polish descent and play the piano, and discover that they can win money from the Kosciuszko Foundation in New York City. A variety of software is available. Your local high school, college, or public library may have the College Board's Fund Finder, which matches students' talents and interests with available scholarships. Come this fall, you'll be able to access this database on the Internet.
Don't believe that private search firms can tap you into "millions of scholarship money going unclaimed," by the way. Says counselor Jim Alexander: "There are no big pools of untapped money out there. After all the intensive searching, the market would have found them by now."
PAYOLA FOR CERTAIN MAJORS. All kinds of colleges have a disproportionate amount of scholarship money earmarked for particular majors. George Washington University, for example, awards $7,500 scholarships for chemistry and physics students who score 650 or above on the math SATs and are in the top 15% of their class. Undergraduate schools of engineering--at Texas and Michigan, among others--often have their own money to hand out.
CHEAPER BY THE DOZEN. If you send more than one child to the same school, check to see if there's a volume discount. Fairleigh Dickinson University in New Jersey gives $2,500 off to siblings. Are you faced with financing two educations simultaneously because you've got twins? Lake Erie College understands. Your dynamic duo can attend for the price of one $10,560 tuition. Three sets of freshmen twins will join two upper-class sets come the fall.
GO ROTC. The Cold War is over, and joining the Reserve Officer Training Corps seems like an anachronism. But the Army, Navy, and Air Force still fund this system. We're not talking just state schools here. ROTC paymasters can help get your kid through schools like Princeton or Duke. The amounts of these scholarships vary but can include full tuition. The Army, for example, provides up to $13,500 a year. To qualify, students must submit their academic records and letters of recommendation, and pass a physical exam. After graduation they must serve four years of active duty, followed by four years in the reserves or National Guard.
PUT THE LITTLE DEARS TO WORK. Most financial aid packages include student employment, usually on-campus work at, say, the library. Beyond that, urban campuses provide much more opportunity to earn money. New York University's VP for enrollment, David Finney, says hundreds of NYU students hustle intern jobs on their own or with assistance from the university, signing up at such places as advertising agencies, Wall Street firms, and TV stations. Engineering students at Northwestern's five-year cooperative program begin working at their trade in the junior year and can make as much as $2,500 a month at engineering firms to pay their college bills. University of Texas students find off-campus jobs with the many high-tech firms that have congregated in Austin.
LEARN HOW TO HAGGLE. Colleges have gotten used to hearing parents say, "Golly, even with your aid offer of $10,000, I still can't swing the other $15,000." In fact, last year New York University heard some 1,000 variations on that theme--and listened! NYU's Finney says the school was able to increase grant money for about 650 of those parents in cases where full need had not been met or where information on the financial aid form was inaccurate.
All schools, including the Ivies, are willing to reconsider your application and will often improve the aid package. But they almost always do so only after you are able to make a convincing case that you are less well off than they thought. Losing your job is clear grounds for appeal. Or maybe you forgot to tell the school how much it costs you to support your aged parents. School financial officers say that the most complicated cases involve divorce and the refusal of one parent to contribute to a child's education. Expensive colleges typically assume both parents will pay if both are working. Says Princeton's financial aid director, Don Betterton: "If the father is in the picture and doesn't want to contribute, we will still expect it, and the student will have to decide whether to come here or not." However, if you're the active parent and your former spouse has been out of the parenthood picture for years, a college might well increase its aid package.
But don't get too aggressive or try to bluff. "A lot of people think this is like Auto Mile," says Lehigh aid director Stanford, a reference to a nearby strip with 30 car showrooms where dickering is expected. Colleges are unlikely to increase aid just because you tell them you can get a better deal down the street. For one thing, like the car dealers, they know pretty much what the deal down the street is. But if you really do have a better offer, show the letter that lays it out. If the school you prefer really wants your kid, the aid people may well retune their offer, raising the grant portion of the package, say, and reducing the amount they were ready to lend you. Even Princeton recalibrates its scholarships in this way. One warning, along the lines of things sounding too good to be true: If a school seems overly eager to sweeten the pot, beware. Perhaps it is working on cost cuts you may not want, like laying off faculty.
Most aid is based on a federal formula that some schools then fine-tune. The point, of course, is to figure out how much a parent can really afford to pay, whether out of income, assets, or loans. This stuff gets complicated, but it's your money, so bear with us as we walk you through an example of how it works, based on calculations by Kalman Chany, head of Campus Consultants and author of the Princeton Review Guide to Paying for College.
Let's say Don and Edna Smith earn $75,000 between them and have $100,000 in net assets. The college they're looking at will determine their net income by deducting some $24,000 for taxes, medical costs, and other expenses. Rather than impoverish the Smiths, the college will also deduct something called an income-protection allowance, which, based on the size of their family, works out to about $17,000. This brings the Smith's income down to $33,751. Another formula, which takes their age into account, calculates a protection allowance for their assets, bringing that amount down to $53,300. The college then adds 12% of the asset balance, or $6,396, to the $33,751 available income. The total, $40,147, is what the school considers to be the Smiths' "taxable" income.
A sliding tax rate assessed by all schools means the Smiths will be expected to pay $14,851 a year toward their kid's education. Swarthmore, if that's where the Smith kid is going, will come up with the remaining $14,000 or so in grants, loans, and student work-study earnings to cover tuition and all other expenses.
With income having such a big influence on the amount of aid you get, it's worth doing all the stage managing you can to keep it down in the tax year before your kid enrolls. This is the year schools look at when determining your financial need. If you are due to get a bonus that year, ask if you can receive it a mite earlier. Don't take capital gains that year, either. Both strategies mean you will be giving the taxman more for that base year but you'll more than recoup that amount when the college comes through with its award.
The assets schools look at can also be minimized. Most schools don't include retirement funds such as 401(k)s and IRAs, so feed them as much as you can. Draw down savings to pay off credit-card or other consumer debt, which the formula doesn't allow as deductions. Large bookstores carry loads of college-financing manuals with many tips on minimizing income and assets.
Be warned: Some of these experts advise you not to put assets in your child's name. They argue that even though this reduces your federal taxes, you'll get less aid because the school will "tax" your assets at a 5.6% rate, vs. the 35% it charges your kid's. But this advice is bad on three counts. One, if your scholar is still years away from enrollment, you probably don't really know whether you'll qualify for aid when the time comes. In short, it makes sense to put cash in the kid's name and take the tax deductions. Two, college-aid formulas keep changing. Who's to know how asset ownership will be treated in the future? Third, top colleges already lump the children's assets in with their their parents' if the money was clearly salted away for education, and tax the total at the far more friendly 5.6% rate.
Another winning strategy is to space your children close enough together so that more than one is in college at the same time. Reason: Your financial need is greater, but your ability to pay as calculated by the financial aid formula remains the same. Result: more aid. If the parents used to illustrate how the formula works were paying for two educations simultaneously, their contribution per child would be roughly halved, while aid for each student would soar to an amazing $20,226 apiece. In this sense, it pays to do some college planning in the bedroom. We've had War Babies and Draft-Dodge Babies; why not Financial-Aid Babies?
IN THE FINAL ANALYSIS, parents eying college do what every red-blooded American does when the financial chips are down: They borrow. The good news is that there are many friendly deals out there. FederalPLUS loans allow parents to borrow the full cost of an education at attractive rates, currently about 8.5%, well below what banks charge for a personal loan. The Commonwealth of Massachusetts provides 8% loans not only to residents but to out-of-staters attending school there. Many colleges also sponsor loan programs. The University of Pennsylvania, which pioneered these programs, allows parents to prepay all four years, locking in the current tuition. The loans are secured by the borrowers' homes, which means interest payments are tax-deductible. Financial aid officers can also hook you up with private lenders, such as Knight College Resource Group, that offer a wide menu of repayment options, stretching up to 15 years, at an 8.5% rate.
All such loans, however, depend on a good credit history. Knight turns down about 40% of the applicants. So keep your credit affairs in good trim or you'll be risking your kids' education. Nor can you relax once the kid is admitted. Some colleges ask students to leave if parents fall behind on their payments.
The most prudent strategy of all is to assume you never will get any assistance. Thus the universal, fundamental, most commonsense counsel: Save early and often. Advises Notre Dame aid director Joe Russo: "Place your kid's education at the top when deciding on how many cars to own, what kind of house to live in, whether to eat out. It's foolish to assume colleges will give you money."
Russo is dead right. But he's not saying there isn't any money.You just have to learn where it is--and figure out how to get it.