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financial aid

Tuesday’s need-to-know money news

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Today’s top story: Saving money while expecting a baby. Also in the news: How to finance your closing costs, teaching your kids about money, and financial tips for adults going back to school.

9 Ways to Save Money When You’re Expecting a Baby
One for every month!

How to Finance Your Mortgage Closing Costs
Little known ways to absorb your closing costs.

5 ways to teach kids about money that work
Letting them make mistakes can be a valuable lesson.

Financial tips for adults returning to college
FAFSA’s aren’t just for kids.

Financial Frenemies: Who Makes You Overspend?
When friends can be bad influences on your wallet.

Friday’s need-to-know money news

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Old Woman Hand on CaneToday’s top story: The warning signs of elder financial exploitation. Also in the news: Five harmless things that can hurt your credit, news apps to help college and financial aid searches, and what to do if you win the lottery.

Warning Signs of Elder Financial Exploitation
How to detect financial exploitation of our seniors.

5 Seemingly Harmless Things That Can Hurt Your Credit
How library fees and traffic tickets can ding your credit score.

20 new apps to help your college and financial aid search
Finding financial aid from your smart phone.

7 Painless Ways to Cut Expenses in Retirement
Ways to cut back without feeling the pinch.

Spending: What you need to know about winning a lottery
Someone has to win.

Friday’s need-to-know money news

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Leader of business teamThe best places to work when you’re over 50, how not to support your kids for the rest of your life and tips on retiring almost tax free.

The 50 Best Employers for Boomer Workers
The fifty best employers for those over fifty.

5 Methods for Setting Retirement Targets
Strategic planning to reach your retirement goals.

5 Tips for Parents On How to Be Good Financial Role Models
Being a good financial role model could save you from supporting your kids in their 20’s and beyond.

How to Negotiate Financial Aid With Your College
Everything is negotiable; even financial aid.

3 Moves to Make Your Retirement Almost Tax Free
How to pursue as much tax free retirement income as possible.

Why college is more expensive now

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Dear Liz: Thank you for your response to the reader who complained that college students who received student loans were getting a handout. You did a great job of highlighting the challenges today’s students face, but you didn’t talk about the main underlying cause. This is the defunding of state universities by state governments. In Oregon, for example, the state has gone from funding over 50% of the costs to current funding of 6%. The difference has been made up by tuition hikes and increasing the proportion of out-of-state (and foreign) students who pay much higher tuition. This is part of the reason that students are crowded out of classes. In Oregon, the medical school found it was better off giving up all state aid and going it alone. Other universities in Oregon are considering taking the same action. Schools founded with state money and supported for years with tax money will no longer be operated for Oregon students. They will be more like private schools, perhaps moving out of the reach of middle-class students. So the answer to the reader is that she did get government help to get through school, help that is now curtailed so students have to finance it themselves.

Answer: The reader didn’t specify what type of college she attended. But the withdrawal of state government funding in recent years has definitely made public college educations more expensive for many students. Meanwhile, many private schools have expanded their financial and merit aid budgets so that some students can attend a private college at a lower net cost than what they would pay for a public school.

High incomes limit financial aid

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Dear Liz: As an avid reader for years I have never felt as compelled to write as I did after reading your column regarding college financing. I disagree that college financial aid is based primarily on income or that “typically [parents are required to] contribute less than 6% of eligible assets.”

We filed a Free Application for Federal Student Aid for our daughter, and our expected family contribution was calculated at $43,000. The school offered my daughter just $2,000 in work study, at a university with a $38,917 annual tuition. Our combined income is $175,000 and our liquid savings (not including retirement accounts) is $145,000.

We could pay 6% of our income (about $12,000) or 6% of income plus savings ($19,000) per year without taking loans, but not $38,000. I have attended several “paying for college” seminars and found their estimated contributions quite sugar-coated compared with the reality.

Rather than paying 6%, is the reality 25% of our income? Please let me know if we have done something wrong, and how to rectify it.

Answer: The 6% limit on eligible assets is not a cap on how much you’ll have to pay for college. As the original column said, income weighs more heavily in financial aid calculations than assets, and your income is high.

The federal financial aid formula assumes families with high earnings have more disposable income to pay for college than lower-earning families. The formula also assumes high-income families have had ample opportunities to save for college, whether or not they actually have.

You could use the net price calculator on the college’s website to see whether your liquid savings are having an effect on your expected family contribution. At some schools, using savings to pay down a mortgage or other debt could result in a lower expected contribution.

But you still might not get aid, even if you could move the needle on your expected contribution. Many colleges “gap” their students by not supplying enough aid to meet all their needs. And while some private colleges offer merit (rather than need-based) scholarships to attract the children of wealthier parents, top-tier schools tend not to, because they know they can attract excellent candidates without such help, said Lynn O’Shaughnessy, author of “The College Solution: A Guide for Everyone Looking for the Right School at the Right Price.”

Even if your family doesn’t have financial need according to the formula, your daughter is still eligible for federal student loans of as much as $5,500 in her freshman year. Federal student loans are flexible debt with fixed interest rates and many repayment options, so they shouldn’t be feared, especially in reasonable amounts. If, however, you would have to borrow much more, and that borrowing would interfere with your plans for retirement or other financial goals, you probably can’t afford this school and need to start looking for colleges you can afford.

Income matters more than assets in financial aid formulas

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Dear Liz: You write about it not being a good idea in many cases to pay off your mortgage, but does it make sense to do so to reduce savings so that we can be in a better position to help our high school junior get financial aid for college in a year? We also have a 529 and some investments and are savers.

Answer: Your income matters far more to financial aid calculations than your savings, said Lynn O’Shaughnessy, author of “The College Solution: A Guide for Everyone Looking for the Right School at the Right Price (2nd Edition).” Another important factor is how many children you have in college at the same time. If you have a high income and only one child in college, you may not get much or any help, regardless of how your assets are arranged.

Many schools ignore home equity when figuring financial need, however, so it might be worth running some numbers. You can do that by using the net price calculators included on every college website. Pick the schools your junior might want to attend and run two scenarios on each calculator: one with your current financial situation and another in which you’ve paid off your mortgage with your savings.

Many parents are overly worried about how their savings will affect potential aid, O’Shaughnessy said. Parental assets, including 529 accounts, receive favorable treatment in financial aid formulas. Your retirement assets aren’t included in the federal formula at all, and your non-retirement assets are somewhat shielded as well thanks to an “asset protection allowance.” The older you are, the more of an asset protection allowance you get. The allowance will be somewhere around $45,000 for a married couple in their late 40s, the typical age for college parents. For those over 65, the allowance is $71,000. Beyond that, you’re typically asked to contribute less than 6% of eligible assets toward your offspring’s education each year.