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5 things you didn't know about financial aid

student wondering about financial aid

Financial aid should go to the brightest and neediest students, but all too often the system throws the most scholarship dollars at those who best understand the rules of the game. What families don't know about the financial aid system can — and often does — cost them award money. These five secrets can help you maximize your scholarship dollars and potentially reduce your debt.

1. The easiest way to bank big is to choose the right school

There are thousands of scholarships out there, but only a relatively small number of big, juicy ones. You can spend your hours cobbling together enough awards to pay tuition and housing, or you can focus on applying to schools that offer substantial aid to students in your income bracket.

"Most families don't pay full sticker price because of financial aid," says Kendra Feigert, director of financial aid for Lebanon Valley College in Annville, Pa. "... A sticker price of an institution shouldn't scare off a family from going through the process and applying."

Many of the priciest schools in the country offer enough aid to make the real cost of attending come in below that of a "cheaper" state school. Each college maintains its own net price calculator, which provides an estimate of what you'll pay to attend that school for one year. Students and parents can also compare net prices for several institutions with the National Center for Education Statistics' College Navigator tool.

2. Loans are financial aid, too

Schools may say that they meet 100 percent of financial need, but that doesn't mean you'll graduate debt-free, says Brad Barnett, senior associate director of financial aid for James Madison University in Harrisonburg, Va.

"Meeting 100 percent of demonstrated need could mean a few different things," he says. "It could mean that the school is providing free money, grant and scholarship dollars that pay 100 percent of a student's calculated need, … or it could mean that a school is meeting 100 percent of need with grants, scholarships and loan dollars."

Families sometimes forget that loans are considered financial aid and may misinterpret award offers as being better than they really are.

3. Some aid decreases in value

Just because your aid package covers a certain portion of your college costs this year doesn't mean it will cover that much in years to come, Feigert says.

"Tuition costs at most institutions do go up every year," she says. "... I would encourage [students] to ask their institution what's your average increase in tuition been over the last several years, … and is my aid going to increase with tuition or is it going to remain flat?"

Barnett also recommends investigating whether your aid awards are renewable.

"Sometimes money that's offered to [students], regardless of the source, are one-year scholarships or maybe two-year scholarships," he says. "... It's really important to pay attention to the awards and the renewability of the awards."

4. Mistakes are costly

Making a mistake on the Free Application for Federal Student Aid (FAFSA) — the form that qualifies families for federal grants, loans and work-study jobs — can cost you dearly, according to Norm Bedford, director of financial aid and scholarships for the University of Nevada Las Vegas. A prime example is FAFSA question number 28, which asks if the student will receive their first bachelor's degree by July 1. Students oftentimes misread the question, believing it refers to their high school diploma and incorrectly select "yes."

"If they select 'yes,' automatically they de-select themselves out from federal Pell Grant eligibility" and eligibility for the Federal Supplemental Education Opportunity Grant, Bedford says.

Another common mistake students make is incorrectly marking themselves as a graduate student, rather than a high school graduate in question 29, Bedford warns. Luckily, correcting mistakes on the FAFSA is fairly easy. Head to Fafsa.ed.gov to review your application.

5. Earning too much can cost you

Working your way through school can be a great way to keep debt down, but earning too much could reduce your financial aid. For the 2014-15 school year, the government allows students to earn up to $6,260 annually without it affecting their federal aid eligibility. For every dollar earned over that amount, the government can subtract 50 cents from the student's federal aid package, usually starting with need-based grants first.

Students frequently earn less than the income protection allowance, but what they may not know is that substantial gifts from family and relatives may also count as income and can easily boost them over the allowance threshold.

"Say, for instance, a grandparent paid in the first year $5,000 of tuition — they gave it to the student …" Kendra Feigert says. "Technically, in the next year's FAFSA, [the student] should report that as money they received. … That's considered income."

The same is true for funds that are pulled from a resource that's not assessed in the federal aid formula, such as a retirement or life insurance plan. Families who are planning to use those funds to pay college bills can save their financial aid awards by moving the money into a 529 account or an account held in a parent's name. While students lose 50 cents for every dollar that exceeds their income allowance, parental assets only subtract up to 5.6 cents for every dollar.

For more strategies on reducing college debt, check out our articles on:

Sources:

Brad Barnett, Senior Associate Director of Financial Aid at James Madison University, Interviewed by the author, May 9, 2014

Norm Bedford, Director of Financial Aid & Scholarships at the University of Nevada, Las Vegas, Interviewed by the author, May 9, 2014

Kendra Feigert, Director of Financial Aid at Lebanon Valley College, Interviewed by the author, May 6, 2014

"The EFC Formula, 2014-15," Information for Financial Aid Professionals, U.S. Department of Education,
http://ifap.ed.gov/efcformulaguide/attachments/091913EFCFormulaGuide1415.pdf

Free Application for Federal Student Aid (FAFSA), U.S. Department of Education,
https://fafsa.ed.gov/fotw1415/pdf/PdfFafsa14-15.pdf