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Paying for COLLEGE Q and A Issue #5
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Will applying for financial aid affect my chances of admission?
Many families worry that applying for financial aid will jeopardize a student's admission chances; however, at most colleges, it's not likely.
The vast majority of schools do not consider a family's ability to pay when making admission decisions. These schools are considered "need-blind." About 90 percent of public and 85 percent of private colleges and universities report that they are need-blind.
Colleges that look at a family's ability to pay when making admission decisions are considered "need-aware" or "need-sensitive." This typically becomes a factor for applicants with weaker qualifications. The college is trying to attract the best freshman class it can. With a finite amount of financial aid available, this means that the applicants they most want often get the best financial aid packages. The college may deny admission to students they are less interested in if those students require a great deal of financial aid. And they may admit students with qualifications similar to those they rejected, if those students are able to pay full price.
It can get unnecessarily complicated if families try to determine if applying for aid will impact the student's admission chances. If you apply to schools that are a good fit academically — meaning your test scores and GPA compare favorably to those of the current freshman class — a need-aware policy is less likely to affect you. You should have a better chance of being accepted and receiving a good financial aid package. To see if a school is need-blind, check the "Other Application Requirements" section of the Admissions page of its College Profile on COLLEGEdata. To get to the College Profile, search for the college by name using College Match.
If a need-aware college determines that your family does not qualify for assistance, your admission application should be treated the same as that of a student who never applied for financial aid. So if you aren't sure whether you will qualify for aid, it's still a good idea to apply.
A family should not be sneaky about indicating whether the student intends to apply for financial aid. Don't pretend that you won't seek financial aid and then announce a change of heart after the student is accepted. At that point, the college may not have a lot of financial aid left. And, if the college does not typically meet students' full financial need, in subsequent years you may not get any aid other than loans.
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My daughter's grandparents want to give her $20,000 for college. Will we still be able to get financial aid?
A $20,000 gift could definitely affect your daughter's eligibility for financial aid. Depending upon your family's financial circumstances, it could reduce the amount of aid she receives or even make her completely ineligible.
The consequences could be significant for families who hope to receive financial aid. A family's Expected Family Contribution, or EFC, is the amount colleges expect the family to contribute toward college costs. It is calculated using data provided on financial aid applications such as the FAFSA and CSS/PROFILE. The gift could increase the family's EFC by as much as $10,000, half the amount of the gift.
Consider giving the money to the parents. A portion of the family's income and assets are factored into the EFC. A dependent student's income and assets are allocated at much higher rates than the parents'. If the gift is considered to be the student's asset, the family's EFC may be significantly higher than if it is considered to be the parents' asset. In this case, the EFC difference could be as much as $3,000. The grandparents should consider giving the money to the parents so that it will be assessed at the parents' lower rates and have a smaller impact on the amount of financial aid the student receives.
Grandparents who want to keep the money in their own names should consider the potential consequences. It will not be counted as a student or parent asset on the FAFSA as long as it's in the grandparents' names. But it must be reported as untaxed student income on the next FAFSA once the money is received and spent by the student or spent by the grandparents to benefit the student, such as using the money to pay the student's tuition bill.
To award their own financial aid, some colleges use another application that asks about all available income. This application, the CSS/PROFILE, asks students to list amounts they expect to receive from relatives and all other sources. Depending on the parents' income level, this money could impact a student's aid eligibility. A growing number of colleges are also asking parents and students about the existence of college savings accounts owned by others in order to decide how to award their own financial aid dollars.
If it's a one-time gift, and eligibility for financial aid is a concern, it may make sense to wait until the student's senior year in college to contribute the $20,000. Why? Because by then the family would have completed their last financial aid applications (for the child's senior year) and the grandparents' contribution would not impact financial aid eligibility, regardless of its format and how and when it was used. (If the student is planning on going to graduate school the following year, however, there will be an impact.)
SO WHAT'S... asset protection allowance?
Financial aid eligibility formulas consider income and assets (such as savings, investments, etc.) as available resources to pay for college. A portion of the parents' assets, however, is not considered as available due to the asset protection allowance. Depending on the aid application used, the exact amount protected is determined by factors such as number of parents, the age of the older parent, household size, and number of students in college. There are also protection allowances for dependent student and parent income, but there is no protection of dependent student assets.
Is a good award in your future?
You have a better chance of getting a good financial aid package at schools that are a good fit academically. To see if your test scores and GPA compare favorably, use College Match to look up the stats for recent freshmen on the Admissions tab of the College Profile. You can also use the Admissions Tracker to compare your qualifications to those of real students admitted over the past five-plus years.
More Q&A
Next Issue
bullet Will home equity reduce my eligibility for financial aid?
bullet How do I know if my financial aid package is a good offer?
Previous Issue
bullet Will the financial aid package I receive as a sophomore be the same as what I received freshman year?
bullet I can save a limited amount of my income. Should I put it into a retirement account or a college savings account?
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Use our online form to send us your questions about paying for college and financial aid.
Lynn O'Shaughnessy is a higher education journalist, college consultant and speaker. She is the author of The College Solution, A Guide for Everyone Looking for the Right School at the Right Price. Her articles on personal finance and college admission and financial aid have been published by The New York Times, Business Week, US News & World Report, Parade Magazine, Money Magazine, and CBS MoneyWatch. Lynn also writes The College Solution Blog.
Information in this newsletter is of a general nature. It is provided for educational purposes only and may not apply to you or your situation. You should consult a financial or tax advisor before acting on such information.
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