What if everything you thought you knew about financial aid was wrong?
They have thoughts like “People like us don’t qualify for anything,” or “My kids grades won’t get him any scholarships.”
I submit that these are unfortunate examples of faulty thinking. In many cases, parents of college-bound teens give up too soon - abandoning their research and other efforts, as if they spent months digging for diamonds but stopped short, inches shy of the glittering fortune that lay just beneath their grasp.In this article, I will highlight some of the legal “loopholes” I use every day in my financial aid consulting practice to help families - even those who earn six-figure (even seven figure) incomes to cut college costs by 45%, and point out some costly, easy avoidable mistakes you should avoid at all costs.
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First, if you’re wondering who the heck I am, and why should you bother listening to me, my name is Andy Lockwood and I’m a “late-stage” college finance consultant in Long Island, New York. I wrote a book, hosted a radio show and am otherwise nationally known as an outspoken (OK, sarcastic) critic of runaway college costs. In other words, I’m a famous person you never heard of! :)
As far as I’m concerned, the most important fact is that I got into huge trouble with college debt ($100K between undergrad at Wesleyan University and law school at St. John’s University), that was stressful and crippling when I graduated and right after. But even today, it crops up in weird, unexpected places. And it’s a big reason why my personal mission is to help 1,000,000 families avoid the shame and suffering I endured.Enough about my issues - let’s look at how the financial aid system works (weasel-language disclaimer from Andy “Recovering Attorney” Lockwood: this is only a SUMMARY. It’s not complete. Don’t send me email telling me I’m wrong!)
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Of course we care more about the good stuff, scholarships and grants. “Scholarships” refer to merit-based awards, the term “Grant” typically signifies need-based aid.
“Merit” is an umbrella term that includes grades and test scores, but also includes community service-based awards, athletic, performing arts, career interest and several other categories.Surprised? I get it - most people think that merit refers to students with perfect SAT scores, a 5.0 average (out of 4) and who cured a deadly disease over the summer.
My rule of thumb is that, if you give me a kid with a solid B to B+ average and decent (not perfect) standardized test scores, together we can find scores of colleges that will bribe him to enroll, offering substantial tuition discounts (colleges call this practice “Leveraging”).
This past year, I had two clients, a boy and a girl, who each had a C plus to B minus average (but active social lives!). The boy got a merit award of $20,000 per year from his top choice college, and the girl got $22,000 per year from a school in her top three.Another girl had an A minus average, two or three AP classes total, SAT scores around 1800, was from an affluent family (high six-figure earners with seven figures in the bank) whose final offer from her top choice college was $21,000 per year, after we negotiated it.
In other words, the overwhelming majority of colleges are just not that hard to get into! Yet most kids from upper-middle class school districts apply to the same 30 colleges, most of which come from that group of competitive colleges.
How does a school become known as “competitive?” By offering a better education, or better alumni connections?Interestingly, this is far from the entire truth. If you look at the criteria used by US News and World Report, the grandaddy of college ranking publications, you won’t find a hair of a scintilla about quality of education. (However, you WILL find mention of reputation among peers and endowment per student.)
Selectivity is another major factor in rankings. This means that schools have an incentive to solicit applications and reject applicants because this result enhances their standing. Actually, there are two incentives if you consider those little old $75 application fees (Harvard reportedly made $2,000,000 in application fees alone in 2012!).So if you were wondering why your child gets 5-10 pieces of direct mail per week (per day?) from schools you’ve never heard of, understand that colleges have become marketing machines to encourage prospective customers (high school kids and families) to buy their product - a college education!
Many colleges employ marketing directors who earn $400,000, promote the employer’s “brand” and create campaigns whereby they send out tens of thousands of shiny brochures and other solicitations (spending six figure sums on the data, purchased from the College Board - itself a “non-profit institution of higher education - hah.)You can beat these colleges at their own game by selecting a list of schools strategically - creating a group of schools based on criteria other than a review of colleges featured on the rear windows of cars in your neighborhood. Expand your college list beyond the same ones your pals are considering. Avoid “Application Incest!”
I know, it’s easy to get caught up in the frenzied blur that college-bound juniors and seniors endure each year. But you can turn this process around 180 degrees - make the colleges chase your kid, not the other way around!This strategy yields results if you have scholarship and/or grant offers from two competing schools, many colleges will try to “one-up” the rival college if you ask the right way (nicely, not over-aggressively). Yes, most colleges say they won’t pay attention to other offers. Hear me now, believe me later, they do.
For example: much of the well-intentioned advice you may have received from your accountant or “wealth manager” (he was a “stockbroker” in the 90’s) may DESTROY your chances of qualifying for need-based grants and other financial aid!
Some of the most common bits of “expert” advice that can flat-out massacre your odds of receiving decent financial aid include stashing savings in your child’s name, and paying down your mortgage.The former tactic may make sense from a tax planning perspective, but if you are going to qualify for need-based financial aid, know that assets in your child’s name will penalize you almost 400% more than if held under your name! (Parent assets decrease your eligibility by 5.64% of the total amount, your child’s savings accounts decrease eligibility by a whopping 20%.)
Here’s where it gets interesting, although some assets count against you more than others, some don’t count against you at all! (Annuities and cash value life insurance are the two most popular vehicles used to legally “shelter” assets to improve eligibility for need-based financial aid.)I mentioned paying off a mortgage as another “good” piece of advice that can impair your chances of financial aid. Although the FAFSA (Free Application for Federal Student Aid) specifically directs financial aid applicants to exclude the value of the primary residence as part of net worth, another form, used by 200 or so mostly private universities with their own endowment resources - the “CSS Profile” - DOES ask about your home, the balance of the mortgage(s) owed and other intrusive questions.
All other things being equal, a family with a higher mortgage balance will qualify for more aid from a CSS Profile college than a family that paid down its mortgage!These are only a handful of the counter-intuitive, weird “landmines” and “loopholes” buried in the financial aid system. There are numerous other provisions and tips having to do with business owners, divorced families and tax deductions, among others. The more time you invest learning about these “hidden” strategies, the greater your chances of success.
Ben Franklin reportedly said that “An investment in knowledge pays the best interest.” In financial aid, specialized knowledge can pay thousands - or tens of thousands - of dollars by way of scholarships and grants.Andrew Lockwood, J.D. is an author, former radio talk show host and college consultant in Long Island, New York who specializes in helping “Forgotten Middle Class” families pay for college without stress, vaporizing their retirement savings or filing for bankruptcy. He is giving away an instantly downloadable version of his newly updated book, “How to Pay ‘Wholesale’ for College” (value: $39) on his website. For more information, visit www.Wholesale4College.com/freebie
