Distinctive

By Victoria Tillson Evans, Ph.D.

Time and again, families cheat themselves out of money and admissions opportunities, for the simple reason that they don’t understand how financial aid works. Rather than keep your child out of a top choice institution or set yourself up for a late retirement, learn the facts, so that you can spend as little as possible on college.

Here are the 6 myths that most commonly misguide families:

Myth #1 – State schools are obviously cheaper than private ones.
Fact #1 – A private education can actually cost less than a public one.

There is no myth that fails to reflect the realities of the financial aid system more than this one. Families constantly steer their kids away from private institutions, because “they cost too much money.” The truth is, however, that a private college education can actually cost less than one at a state school.

“How can that be?” you might ask.

The fact is that many private institutions are financially very well-endowed. Unlike their state school counterparts, which often rely on public funding to subsidize in-state tuition fees to operate, some private colleges and universities have the luxury of being able to rely on their own coffers to offer nice scholarships to entice the best and the brightest to enroll, no matter which state they come from. The financial problem with a public education compounds when you look at out-of-state institutions, where non-resident fees now hover around the same levels of those of private colleges. Not being the beneficiary of state-sponsored support, you’ll quickly discover that that public school degree can actually cost a lot more than a private one.

So instead of evaluating colleges based on whether they are private or public, research three other key pieces of information to guide your decision about where to apply: need met, average student debt, and graduation rates, at least if you want to make sure your child does not move back home and raid your refrigerator until he gets married! By looking at the percentage of need met, you can start to work out how much you’ll be paying out of pocket each year on top of what colleges think you can afford to pay – and trust me, their idea of your “ability to pay” won’t match yours. By looking at student debt amounts, you’ll get a sense of how easily your child will take off after college and whether or not you’ll likely get scholarships or loans in your financial aid package. And by looking at graduation rates, you’ll figure out how likely it is you’ll be paying for a fifth or sixth year of college. That’s a lot of extra money.

Myth #2 – I can’t afford that school. I’m not even going to let my kid apply.
Fact #2 – Very few families actually pay the published sticker price.

Not being in the top 1% of earners does not necessarily preclude your child from affording the best possible college education. In fact, some of the so-called most expensive schools in the country have the best financial aid packages. Places like Rice University, Haverford College, and Stanford University even offer loan-free packages to families making under pre-determined amounts, ensuring that low-income and some middle-class families can afford to send their high-achieving progeny to the colleges they have worked so hard to get into.

Think of college tuition pricing more like airline tickets, rather than a home – although the numbers you’re looking at will make you think this is a false analogy. Colleges often discount the cost-of-attendance, meaning almost no one pays the full sticker price. Instead they adjust pricing based on need and merit, leading to unpredictable, but often affordable, educational opportunities. So, rather than fixate on the published “cost,” do your due diligence. Google colleges’ Net Price Calculators, check out average student debt, and read up on post-graduation employment rates. Those numbers should help you put everything into perspective.

Myth #3 – My kid’s smart. He’ll definitely get a scholarship.
Fact #3 – You can’t count on getting scholarships from every college.

Wait a second – doesn’t this “Fact” seem to contradict the previous one? Not quite. Scholarships for being smart are based on relative academic achievement compared to the rest of the entering class, whereas tuition discounts are based on your family’s ability to pay and what the college perceives to be your child’s future contribution to campus.

While your child may be valedictorian of his class, there are actually over 37,000 of them in the U.S. alone! Some colleges, like those in the Ivy League, simply do not offer merit scholarships for such academic achievement. They consider everyone they admit to be meritorious.

To avoid succumbing to this dangerous myth, do your research in advance. If your child is brilliant and you don’t qualify for much need-based financial aid, consider “Safety Schools” that guarantee scholarships for great grades and standardized test scores. You can also consider honors colleges within larger universities, which can offer top-flight educational opportunities as well as healthy financial packages.

Myth #4 – I won’t get financial aid. I make too much money.
Fact #4 – You can get financial aid irrespective of how much money you make.

Having a high income does not necessarily preclude your child from receiving financial aid. In fact, it may even earn him some. That’s right – being rich can get your family scholarship money. Yes, all logic has flown out the window, but the financial aid system was not designed to make sense. It was designed to recruit the best students and help colleges balance the books. As a result, at need-aware colleges, where tuition rather than an endowment sustains programs and provides scholarships to low-income students, wealthy students are enticed to enroll with financial rewards. After all, what’s offering a few thousand dollars a year, when you’ll be paying the school tens or even hundreds of thousands over the next 4 years?

And don’t forget – financial aid is not just need-based. It’s also merit-based. If your child has a special talent or exceptional grades and test scores, you could see cash for those skills. So, make sure that your child signs up for auditions, speaks to coaches, and studies hard. Colleges want students who will make them look good, both in and out of the classroom.

Myth #5 – I’ll figure out how to pay for college once my kid gets in.
Fact #5 – You need to figure out what you can afford before you kid applies to college.

There is no strategy more risky than this one. We all know from the day that our children are born that college looms on the horizon. Yet, most Americans don’t put away enough money, either because they can’t afford to or because they choose to use their funds in other ways. For families that make a lot of money, you need to start saving from the day you give your child a name. Although this will lead colleges to think that you are flush with cash, leaving you feeling “penalized” for having these assets, you will find it is far better to draw from your own accounts than to have to pay back loans on the eve of retirement.

On top of that, you don’t want to promise your child that she can go anywhere, and then have to renege on your offer when she gets into her $50,000 a year dream school that offers no scholarship money. The best thing to do is figure what you can afford before your daughter decides where to apply and have a serious talk. By establishing limits from the get-go, you’ll avoid painful conversations, inevitable heartache, or worse – penury.

Myth #6 – I didn’t get any financial aid – just loans and work-study.
Fact #6 – Loans and work-study are financial aid.

In most people’s minds, financial aid means “scholarships.” What they don’t understand is that colleges actually break financial aid down into three major categories: scholarships, loans, and work-study. While the first category is certainly the most preferable form (who doesn’t want other people’s money?), the other two options do open opportunities to students, who may not otherwise have been able to afford a college education.

Generally speaking, federal loans tend to have the best interest rates and repayment terms; but do your homework! Figure out which options work best for you and your child, so that you’re not saddled with debt you can’t repay.

Work-study, alternatively, is a great opportunity for students to gain work experience, without worrying about an employer requesting unrealistic hours. In some cases, all your child has to do is sit at a desk and swipe other students into a college facility, while doing her homework. Don’t you wish your job were that plush?