Get Schooled on Getting the Best Deal for College

Eric Gillin

When the college search ends, the hunt for financial aid begins.

After spending months touring universities, filing out forms and writing essays, parents and children are now receiving the fruits of that labor. But once the joy of college acceptance wears off, the sheer cost of attending may leave parents who haven't saved enough with a case of sticker shock.

It's no secret that the cost of attending a college is increasing quickly. According to the College Board, the average cost of tuition, fees, room and board at a four-year private institution was $23,578 per year in 2001, an increase of 5.3% from 2000. Meanwhile, the cost of a four-year public institution increased 7% over the same span, with an average price of $9,000 per year.

Meanwhile, the amount of financial aid available in the form of loans, grants and other programs also has been rising, hitting $74 billion during the 2000-2001 school year, according to the College Board. That's an increase of 7.1% from the previous year, narrowly outpacing the increasing cost of education.

"Funding college is very much a partnership between the family, the school, and the state and local government," says Jack Joyce, director of guidance services for the College Board. While universities give scholarships and the government provides loans, it is up to parents to provide the rest. That remainder is called the expected family contribution, or EFC.

EFC is determined by using a formula based on the Free Application for Federal Student Aid, or FAFSA. But the FAFSA targets income and assets without considering debt, making the EFC a reflection of what parents should pay -- not necessarily what they can pay. "Families will be shocked to find out how well off they are under these formulas," says Greg Stringer, senior vice president of education lending for National City Bank.

Let's Make a Deal

Typically, the amount of your financial aid package is the difference between the college cost and your EFC. And schools have various methods to structure a financial aid package. For example, they could give a merit-based grant instead of additional work-study compensation. Because of this leeway, financial aid packages don't always provide the best offers.

"The first thing parents should do is examine the financial aid package and then make an appointment to talk to the financial aid director," says Rob Franek, editorial director for Princeton Review. Meeting with the financial aid department provides you with an opportunity to present a case for more aid and can help move that financial aid appeal to the top of the pile.

"We certainly will listen to families," says Don Emmons, dean of admissions for Hobart College, in Geneva, N.Y. Because there's a lag between application and acceptance, Emmons says colleges aren't aware when financial situations change. As a result, schools are willing to make adjustments, especially in the case of a recent job loss, death or hospitalization.

Financial Aid: Where Does the Money Come From?
Source of Aid	Aid Awarded (in billions)	Percent of Total
Federal Loans	$37.1	49.9%
Institutional and Other Grants	$14.5	19.5
Federal Pell Grants	$7.9	10.7
State Grants	$4.6	6.2
Nonfederal Loans	$4.5	6.1
Other Federal Programs	$2.8	3.9
Federal Campus-Based	$2.8	3.8
Source: College Board

The first step in appealing that financial aid package is to gather evidence to prove you need more aid, says Franek. Collect monthly bills to show how much you're spending, but be prepared to defend your lifestyle. Compare aid packages and show the admissions office that you're getting a better deal elsewhere. Also, academic improvement during senior year in high school can make some eligible for merit-based aid.

It may seem like your bargaining power is nil. But when admitting students, colleges are crafting an identity. Some schools are looking for ethnic diversity, out-of-state students and exceptional athletes -- not just those with great test scores. "Schools need kids as badly as kids need school," says Ray Loewe, advisory board member for the GE Center for Financial Learning.

Before you call, know that different schools have different levels of flexibility when it comes to appealing an aid package. Loewe says Ivy League schools are the least likely to make adjustments because they've got a massive pool of applicants who will pay a premium to attend.

State colleges don't have a lot of room to negotiate because their tuition costs are already low, and they've often got smaller endowments from which to draw, he says. Indeed, while Harvard University has an $18 billion endowment and 20,000 students, the University of Maryland System has $507 million and 126,000 students enrolled throughout the system.

The combination of high tuition, large endowments and increased competition makes private schools the most flexible. Smaller private institutions could be the best bet because they may have fewer students but proportionally large endowments. This is the case with Grinnell College, a small four-year private university in Grinnell, Iowa, that has a $1 billion endowment and just 1,300 students.

Even more important than the appeal itself is the approach. "Never use the word 'negotiate,' " Loewe says. "Most colleges think they're above negotiating."

Instead of wheeling and dealing, be direct. "Tell them the school is a top choice and that you want to make it happen, just not with the numbers we see here," Franek says.

Financial aid is often determined on a rolling basis, so parents should make an appointment with financial aid as soon as possible. Most schools require prospective students to apply by May 1.

Free Money

There are other ways to make funding college easier. More than $14.5 billion in grants is available from nongovernmental sources, according to the College Board. "Most students never take the time to find scholarships they may be eligible for," says Michael Fleischner, vice president of marketing for Peterson's, a database on education.

In the past few years, the Internet has become a great source of scholarship information. Peterson's, a unit of Thomson Financial, lists $4 billion in scholarships and grants in an online searchable database, while rival FastWeb lists $1 billion in scholarships. The College Board offers a similar service on a smaller scale. And they're all free.

"One of the mistakes a family will make is thinking that they're not eligible because their son or daughter is not the star quarterback or a straight-A student," says the College Board's Joyce. Searchable scholarship databases help students root out scholarships by using a lengthy questionnaire covering a wide array of topics, from where parents are employed to what students want to study in college. As a result, they'll discover a scholarship from the local Knights of Columbus or a grant from an obscure trade group.

Awards vary greatly, but Fleischner says the average scholarship runs between $1,000 and $2,500. While the reward is clear, applying for these scholarships can be a time-consuming process, requiring more essays, mailing and paperwork. "Students need to base the amount of time they spend against the potential reward," says Fleischner.

His advice: Apply to the ones that are the best fit. Small awards can require even more work than larger awards, so it's important to know what's required. And act quickly because many awards have a deadline of March 31.

"Every dollar you find will be one you otherwise don't have to borrow," Joyce says.

Cheap Money

When those other options are exhausted, parents still have the federal government and the banking industry on their side, ready to lend money. Loans represented 58% of the total financial aid available for students during the 2000-01 school year, up from 41% in 1980-81, according to the College Board.

"Don't be afraid of loans," says Franek of the Princeton Review. Although many parents dislike taking on more debt, federal loans are some of the most lenient available, and they will be in the financial aid package already, in the form of a Perkins or a Stafford Loan, which comes either subsidized or unsubsidized.

The government pays interest on a subsidized Stafford while a student is in school, and defers interest under both the Perkins and unsubsidized Stafford. With all three varieties, students are given 10 years to pay off the loan, and ways to postpone payment in case of financial hardship.

One loan that won't show up in the financial aid packet is the federally funded Parent Loan for Undergraduate Students, or PLUS Loan. Under a PLUS Loan, borrowers don't need collateral, can take up to 10 years to repay the loan and face no prepayment penalty. By law, the rate on a PLUS Loan will never exceed 9%, and it is currently below 7% -- very attractive.

And with mortgage rates near historical lows, a home equity line of credit becomes another attractive option. Unlike a home equity loan, which delivers money in one lump sum, a home equity line of credit allows borrowers to dip into a pile of cash as they need it. "They're a great strategy for anyone with insufficient cash flow with equity built up in their house who would like a tax deduction," says Donn Sharer, vice president of financial planning for MetLife Financial Services.

But no matter how grim the bottom line, Sharer warns that withdrawing money from retirement savings solves one problem only to cause a bigger one later. Don't touch IRAs or 401(k) plans unless you're in dire need and are completely aware of the penalties, taxes and fees associated with early dispersal.

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