Ten Common Mistakes Parents Make When Sending Their Child to College
Mistake #1: Most middle and upper-middle class parents assume they won't be eligible for financial aid because they own a home and make too much money.
Reality: Most families with incomes ranging from $40,000 - $120,000 per year who own homes are eligible for some form of financial aid. There is more than $30 billion (with a "b") available each year from the federal government, states, colleges and universities, and private foundations and organizations.
The catch? You just have to know how to get your "fair share". Unfortunately, those who are poor already qualify. Those who are rich don't need the help. The parents with the most at stake are middle-income families who will drastically curtail their lifestyle or raid their retirement savings for a minimum of the next four years. Most parents assume they won't be eligible. That's not necessarily true.
Mistake #2: Focusing your time and energy on a private scholarship search instead of spending your time trying to qualify for "need-based" financial aid.
Reality: Private scholarships make up approximately one percent (1%) of the money for college. Most scholarships are for one year and they start at $250. Even a $1,000 scholarship, while nice, won't make a dent in the total cost.
The other 99% comes from the federal government, the state you live in, the colleges and universities and YOU. Therefore, you are much better off spending your time and energy addressing the 99%, rather than spending your time on the 1%.
Mistake #3: Focusing solely on public (state) universities, ignoring private colleges and universities for your student.
Reality: Many families find the value of a private college education is better than a public university. At first glance that seems unlikely given that tuition and fees shown for private colleges are far more.
There are three reasons. First, they give more aid. An empty desk at a private institution is totally wasted, generating no revenue for the college. They're willing to take less rather than earn nothing. As a result they can add a “tuition reduction” or a generous grant as part of the package. You will usually get a larger financial aid package from a private institution.
The second reason is because private colleges are structured to graduate their students in 4 years. In fact, some 78% of students at private colleges graduate in four years. Less than half graduate in four years at public universities – only 75% graduate in six! Worse, those students lose two years of earnings because they're still in college while the private school grad is out making money!
The third reason is because their Estimated Cost of Attendance (ECOA) is much higher. Your Estimated Family Contribution (EFC) stays the same for every school. So if the cost of college is $15,000 a year and your EFC is $12,000, you qualify for $3,000 in need-based aid. If the ECOA of a private college is $25,000, you qualify for $13,000 in need-based financial aid!
For these reasons, many families find it MORE affordable to send their student to a private college than a public university.
Mistake #4: Picking colleges and universities without paying attention to where your student lies in relation to the rest of the student body.
Reality: To increase your chances of getting the best possible financial aid packages, it is imperative that you pick schools where your child lies in the top10% of the incoming freshman class with respect to their GPA and SAT/ACT scores. Although schools give
financial aid based on your calculation of "need" at their school, they will definitely give preferential packaging (i.e., more free money, less loans) to students who lie in the top 10% of the incoming class. The reason they do this is to attract the better students to their school. Use this to your advantage and apply only to those schools where your child would fit into the top 10% category.
Mistake #5: Assuming all schools are created equal and will give you the same amount of money.
Reality: All schools are not created equal and will not be able to give you the same financial aid package. Most often, every package is different.
Mistake #6: Not understanding the difference between "included assets" and "unincluded assets" for purposes of filling out financial aid forms.
Reality: This is one area where families can impact the amount of money they spend for college and is most often ignored completely – simply because they don't know.
Certain assets are counted much more heavily in the financial aid formulas than others – and some aren't counted at all.
Mistake #7: It doesn't matter where you keep your money; it's all counted in the same way.
Reality: Not true. As we pointed out in Mistake #6, where you keep your money can mean the difference between you being eligible for $10,000 in financial aid or getting nothing! For example, money in the child's name is weighted much more heavily than money in the parent's name. What makes it confusing is that colleges and universities ask separate questions and use a separate formula to determine your need. They DO count home equity, for example, when the federal formula does not.
If you don't know how to legally and ethically position your money properly for purposes of financial aid, you could end up losing thousands in financial aid to which you would otherwise be entitled.
Mistake #8: "My CPA or tax preparer is qualified to fill out my financial aid forms. I'll have him or her do it."
Reality: I would like to believe that too. Unfortunately, CPA's and tax preparers are experts at tax planning and preparation – not financial aid planning. For example, a CPA or tax preparer might suggest that you put some or all of your assets in your child's name to save money on taxes. While this advice is well meaning, it will usually kill most or all of your chances of getting financial aid.
Also, CPA's and tax preparers are not trained in filling out financial aid forms. In many cases, they will unknowingly fill out these forms improperly. One mistakes sends the application back to YOU. Let's be fair. We are not tax preparers, and they are not financial aid experts.
Plus, they'll likely charge you more than a financial aid counselor will.
Mistake #9: Waiting until January or even worse after January of your child's senior year of high school to start working on your college financial aid planning.
Reality: Since financial aid is based on your previous year's income and assets, it is imperative to start your planning as soon as possible before January of your child's senior year. If you want to legally set up your income and assets so you can maximize your eligibility for financial aid, you must start working on this at least one year in advance - preferably in the beginning of your child's JUNIOR year of high school.
The longer you wait and the closer it gets to your child's senior year, the tougher it gets to set up your financial picture without creating a "red flag" for the colleges and universities. It is also important for you to know what your "Expected Family Contribution" (the amount you are expected to pay before you are eligible for financial aid) is so you can start saving for it.
Mistake #10: Handling the financial aid process by yourself.
Reality: When parents are about to send their child to college and spend between $10,000 - $45,000 per year for one child, parents really shouldn't go it alone.
It's a complicated system - a blend of federal and government bureaucracy, mixed in with involvement of private, for-profit and non-profit enterprises, a maze of ever-changing rules, deadlines, regulations and other complications. It just makes sense to get some help. That help can result in many thousands of dollars of savings.