11 Financial Aid Myths Debunked
by Patrick Noonan, Commonwealth Financial Network
If you're like many of the advisors I work with, you spend a lot of time helping your clients develop and manage a plan to simultaneously save for college and retirement. But after years of planning and saving, how many of these clients incorrectly assume that they won't qualify for financial aid or assistance?
To help clients explore all of their options, you can start by debunking some common financial aid myths.
Financial aid comes in many forms and from various sources beyond traditional need- and merit-based aid. Be sure to research all the possibilities, including the state government, local community organizations, and the client's employer. Here, you may consider an education planning tool to examine costs and affordability more effectively.
Because the financial aid formula is primarily income-driven, savings will not necessarily disqualify a student from receiving financial aid. In fact, only 5.6 percent of the parent's assets (after an asset protection amount is taken into account) are considered available for college expenses, as compared to 20 percent of the child's assets.
Of course, a family with savings may have more options when it comes to paying for college, as families who haven't saved may find themselves borrowing to pay all or part of their expected contribution. Depending on a client's circumstances, repaying student loans with interest may not make as much financial sense as using savings to pay for college.
It is not required that students accept every component of the award package. For example, some students decline to take out a loan or participate in a work-study program. Keep in mind, however, that student loans and work-study are considered a contribution from the family. If a student does not accept a loan or work-study as part of the financial aid package, the family is responsible for replacing those funds.
Most colleges adhere to strict award guidelines. As such, it's highly unlikely that a student who receives a favorable award letter from one college would be able to use it to negotiate an adjustment from another.
If the family's financial condition didn't translate to the application, however, a student may request an adjustment (e.g., if the family experienced unusually high medical expenses). In that scenario, your clients should justify the request for a review by including detailed medical costs and payment documentation.
The earliest date to submit the Free Application for Federal Student Aid (FAFSA) is October 1 prior to the start of the academic year, and the deadline is June 30.
Although many colleges have preferential filing deadlines for maximum consideration, a later application could still result in some financial aid. But remind your clients that an earlier application will likely reap greater benefits. Plus, college guidelines vary, so clients should confirm the procedures with the schools to which their children are applying.
When a student submits a completed FAFSA, a federal processor reviews it. Then, a federally established formula is used to determine the expected family contribution (EFC). Finally, the college itself determines the student's award based on its resources and the student's financial need.
Beware of any program that guarantees aid for a fee. Dependable scholarship and financial aid information is readily available through college financial aid offices, government-sponsored websites, and reputable consumer organizations. Some free online resources include:
For some students, it's true that maintaining a regular work schedule and a full course load can be challenging. But it's also true that students who work part-time tend to develop strong time management skills and perform better academically than those who don't work. Plus, a part-time job provides good experience and helps build a student's work history. If your clients have this concern, you can also remind them that colleges limit the number of hours per week that students can work.
Your clients should not rule out private schools simply because of their high published tuition costs. In fact, some students have a better chance of receiving aid from a private school for various reasons, including a well-developed alumni endowment or a mission to attract a diverse student body. Higher college costs may also provide an opportunity to demonstrate greater financial need. Bottom line? The goal of the college application process is to find a school—public or private—that matches the student's academic, career, and personal needs.
Filling out the FAFSA form can be confusing, especially for first-time users, but many helpful resources are available if your clients seem overwhelmed with the process. A good place to start is the college's financial aid office or the student's high school. They could also watch the "Five-Minute FAFSA" video, which takes a lighthearted approach to tackling financial aid paperwork. Once your clients are ready to go, they can complete the FAFSA online, with real-time chat access to representatives.
Be sure to emphasize to your clients that whether or not a student applies for financial aid does not affect the admission decision. In fact, it's recommended that your clients' children indicate that they are applying for aid on the admission application. That way, the college can open a financial aid file for the student and track all related forms.
What other financial aid myths or misperceptions have you heard from clients? Please share your thoughts below.
Editor's Note: This post was originally published in January 2015, but we've updated it to bring you more relevant and timely information.
Commonwealth Financial Network is the nation’s largest privately held independent broker/dealer-RIA. This post originally appeared on Commonwealth Independent Advisor, the firm’s corporate blog.
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