Financial Aid Racket - Suggestions for Fairness

Parents Forum
1

<p>
[QUOTE]
The cost of attending these schools if $50K or more. However, the financial aid is based as much on <em>assets</em> as <em>income</em>. So, if a parent has been responsible and paid down their mortgage and saved some money, they are completely screwed by the system. Those that blow their money, take out irresponsible home equity loans, and go into the Financial Aid game "broke" are handsomely rewarded.

[/QUOTE]

The above quote came from a similarly named thread from last year at this time.</p>

<p>My idea would be to pull the Social Security statements for the parents and add up the earnings. That would replace the "savings" component of the FAFSA calculation.</p>

<p>Say you pull the SS statements for the Ant family, and the Grasshopper family, who have a kid the same age. Say the totals are exactly the same...the families earned the same amount of money over the past 18 years.</p>

<p>So Anny Ant has parents that make $150K/yr, drive Audis, go to Europe, and pay $200/mo on cable, and bought a house three sizes too large. Gerry Grasshopper has parents that also make $150K/yr, but drive the same car for 10 years, never had cable, all because they don't want to be a slave to "the man" until they're 67 years old.</p>

<p>If the formula didn't look at assets, but instead looked at how many assets you could have had based on your long-term earnings, that would make a lot of folks feel a lot better about this racket. It would also stop people from playing games with buying assets that "don't count" in the formulas. Nothing is going to be perfect, but this asset thing really bugs those of us that save.</p>

<p>--Dale--</p>

2

<p>What if people just stop thinking FA is an entitlement, and going to college is everyone’s right. Someone like Gerry Grasshopper probably has the luxury of sending his kid wherever he wants to instead of letting the FA fairy dictate where his kid could go.</p>

3

<p>The myth is that those who don’t save are “handsomely rewarded”. The truth is that most schools have little aid to give…no matter how much need you have.</p>

4

<p>Oh please! Need based financial aid is based far more on income than on assets…unless the parents happen to have a LARGE dollar amount in assets. If they have a huge dollar amount in assets, then what better way to use some than on the education of their kids. There is always the option of attending less expensive colleges than $50,000 per year.</p>

5

<p>Why does any of this matter? People pay different amounts for the same airline seat. And seem happy to do so. </p>

<p>And who said it was supposed to be “fair”? Being “fair” to thousands of applicants, most of whom are going to be rejected anyway, is not part of the mission statement of any college or university that I’ve ever heard of (and with good reason).</p>

<p>There really is no such thing as “financial assistance”. The institution sets the list price, and then tries to fill the seats at what ever price they need to best meet what they think of as their institutional mission. (Same as the airlines, though some institutions have the luxury of being more picky about who fills the seats.)</p>

6

<p>What is clearly going to happen at some schools is that the schools are going to give up (involuntarily) on trying to squeeze their upper income matriculants, and simply move in the direction of one price for everyone. Any financial aid will be from the student himself and not through any phantom scholarships.</p>

<p>There is movement in this direction already. I can’t prove it, but I believe that a lot of families today are more likely to send their child to a large state school than to a full price private school that years ago may have represented a much better alternative than it does today.</p>

7

<p>Maybe, but I see the evidence going the other way. Income and assets for the top 5% of the population are higher now than they’ve ever been, and prestige private college costs, relative to these incomes and assets are at their cheapest point in 30 years. The result is that even as prestige privates raise their list prices, the number of full-pay applicants rises even faster, as their wealth is rising faster. In most states, COA for state universities is rising much faster than at the prestige privates. And the number of applications to prestige privates is exploding. </p>

<p>What this meant for many prestige privates, however, is that they couldn’t stock their football and basketball teams with full-pay or Pell Grant students, and upper middle income students (family incomes $67,000-$175,000) were being squeezed out. Harvard found a way to deal with that, with the result that their sports teams are now flourishing, and I expect that will happen at other prestige privates as well.</p>

<p>However, the second and third tier privates will have more difficulty “keeping up”, and will look for new business models.</p>

8

<p>I just got a book out of the library called “The Complete Idiot’s Guide to Paying for College” and frankly, I was surprised at how much of the advise there seemed to straddle some kind of ethical line. They suggested things like liquidating the kid’s college accounts and putting them in the grandparents’ names, buying expensive cars and so forth – It seemed odd to me that an editorial board would be actively promoting strategies that I’m assuming would be frowned on.</p>

9

<p>I was annoyed when I found out what our EFC would be (way over COA) because of high-assets. But after getting used to paying the bills for a few years, I don’t think much of it. The view is almost like that of insurance. Some people drive recklessly, in bad weather, impaired, distracted, etc. and drive insurance prices higher while others drive carefully and never get into accidents but still subsidize those that do. Auto insurers do look into your driving record though - whereas financial aid analysis doesn’t factor in how you got to where you are.</p>

<p>Health Insurance is similar - there’s a debate in Britain over priority for services between older people and fat people.</p>

<p>Doing the right thing (being a prudent saver, driving responsibly, taking care of your weight and fitness) is going to give you more choices and fewer headaches on average over the long run. And there’s something to be said for peace of mind.</p>

10

<p>Strategizing to get the most financial aid legally is perfectly fine, just as tax planning is. There is no “frowning upon” by those in the know and financial aid offices have been known to tell parents who are naive about these strategies to do them. The problem is illegal stuff.</p>

<p>First of all the way it works for FAFSA is that parents are hit at 5.6% of assets over the protection amount with the primary residence excluded. For colleges that use their own methods, though most will pretty much use FAFS guidelines, the reality is they can do what they please and most will take the market value of your home into consideration and some want to know what cars you own and will also look at your qualified plan assets. </p>

<p>It is pretty much a myth, however, that hordes of people are getting loads of financial aid by scheming. First of all, a very low EFC is needed to get PELL money which maxes out at $5550. That and subsidization of a small amount of loans is all that a low EFC guarantees you. In order to get large amounts of money, a student has to get into one of the schools that meets financial need which puts that student in a very small group to even have a chance of gaining an acceptance to such a school. If you want to play that kind of a lottery, and some people do and win, then go right ahead. But income is still the biggest determiner of whether or not you qualify for aid. Yes if you have tons of money saved up, it is going to be expected you used it to pay for your kid’s college education, but it’s really the income that makes the difference in most aid.</p>

<p>A family who makes $100K and has nothing saved for college will end up getting a lot more money from a school like Harvard than someone making the same and putting away half the income for many years and having a nice nest egg, but how many end up in that position? You take the risk of having little or no choices for your kids’ college living that way. We see the boards here peppered with parents who make what is considered a great income, but have not saved for college, sometimes for good reason, and are now accepted at schools with inadequate aid packages with mostly loans offered. Yes, you can win the lottery ticket and have enjoyed spending that money on whatever over the years over pinching pennies and saving it, but you are far more likely to have to tell you child that you can’t afford to pay for college despite this nice lifestyle the family has been enjoying since you did not save money, or take out loans risking future security when you are only getting older and the risks are greater. </p>

<p>Sort of a true situation here. Family A spends to the limit with maybe a months worth of living expenses in savings, great vacations, designer clothes furniture, the state of the art electronics, new cars, the works. Family B invests in as expensive of a house they can afford so that they are in an upscale neighborhood, great public schools, close enough to work so time can be spent on family, but little money saved. Family C spend their money on private schools, private lessons, extracurriculars on kids, again little money saved. Family D lives modestly and puts as much money away as possible. Income histories the same. Who is in the best shape for paying for their kids’ colleges?</p>

<p>Let’s say the income level is $100K. Get too much higher than that and no school will give financial aid, but at that level for the very top schools, some funds are available. So if the kids get into Harvard, family A continues to enjoy the spendthrift life. They’ve won the lottery. But what if the kids gets into PROFILE schools that have great reps, the kids like, their peers are all going to like schools, and it comes down to making the pick. ironically, yes, Family A is not the worst off. They have the belt to tighten since they are spending money on junk each month and can stop. Painful yes. But they can stop the vacation, sell the cars or not buy new ones for the next 14 years. take out loans and amortise the payments over that period of time, longer if there is more than one kid. They don’t have the fixed obligation that family B has, especially if there are younger siblings and they are set in their school, and selling a house these days is no easy job and no guarantee of getting ones money out of it. Believe me, it’s an alternative I have been extensively researching for us. Family C will have freed up money that was being spent on the kid’s school and extracurricular stuff. Yeah, that’s sort of us, as we had been paying private school tuition for years for our two college kids, so that portion of the college cost was covered by the cessation of those payments. But Family D has the money and the option to borrow, plus by stopping the savings flow, can pay from current income too. A lot of flexibility here.</p>

11

<p>Nice illustration. We’d be Family D, paying mostly out of current income. Some other things about Family D: you feel like you get a big raise when the kids are done with college. You also have all of that savings to work with. If you’re good at managing investments and you happen to be in a major bull market, you can really grow that savings during those great bull markets that happen maybe twice a decade.</p>

12

<p>Well, sengsational, your plan would have helped our family. My DH’s salary was very modest for years, but then doubled with a job change only a couple of years before S started college. If you looked at our income, you’d have assumed a certain ability to save that we simply didn’t have in reality. Our assets are negligible. Meanwhile, S’s high school friend’s family earned a lot for years and years, but right before she started college, both parents were laid off from their well-paying jobs. Despite having a large house, nice cars and years of comfortable living (including expensive vacations), guess who got more aid? They did.</p>

13

<p>Yes, the financial aid system has it flaws and niches. That history of income is not taken into account is an issue. So a family who is currently unemployed will get more than one who was unemployed for a long time but is now employed. Past issues are not taken into account. Gotta deal with them with future income, meaning loans.</p>

14

<p>Really, what’s the point? Mini’s argument is vaguely troubling because it highlights growing income inequality more than it justifies high tuition costs. That is a political and economic issue much broader in scope than the cost of college.</p>

<p>In-state tuition at public schools is rising so fast because of state budget cuts. But if you compare out-of-state tuitions to the top-tier private tuitions, it’s clear that the public schools are still the most cost-effective for what they deliver. If someone really wants to get out of the middle class, or give their kids an opportunity to do so, then they should be shopping smart and working smart. Is it smart to alter your lifestyle choices, simply to work the financial aid system and hopefully get your kid into a top-tier private college? That seems to me more like buying a lottery ticket than a real strategy.</p>

15

<p>I don’t think high tuition at private colleges has to be justified. The market does that. (I think market forces are telling is that tuition at prestige institutions is WAY too low - at my alma mater, they claim to be spending $88k a year per student, but only charging $55k. Which means that my measly alumni contribution is subsidizing the children of multi-millionaires to the tune of $33k a year.) And meanwhile they turn away more applicants each year. I’d like to see them RAISE the list price substantially until the number of applicants levels off, and provide extra aid for those who then can’t pay the list price.)</p>

16

<p>If you want to see your money put to better work, donate to your lower-ranked state schools. That’s what I’m doing.</p>

17

<p>This is not a market that incorporates real price competition. What we have are non-profit institutions charging economic rent, but not able to distribute profits to shareholders. How else could your alma mater claim to spend $88k per student?</p>

18

<p>The market is distorted by fairly easy access to loans too and various regulations on those loans.</p>

19

<p>A perhaps bigger distortion is that there is little price transparency in that, before this academic year, students had little idea beyond vague reputation of what kind of actual net cost they would incur at each college after applying financial aid. So it was basically apply and hope that one of the acceptances came with sufficient financial aid to discount the list price into the affordability range. The net price calculators this year at least theoretically help, although it does appear that many students do not know about them when making their application lists, and they may or may not be that accurate for more unusual financial situations.</p>

20

<p>It’s hard for us to feel sorry for anyone who is getting FA as we will qualify for no aid at all. Why should ANYONE be entitled to any aid at all? If someone can’t afford a Mercedes nobody steps in and offers aid to help them afford the Mercedes. How did college come to be different?</p>