How to Afford College Now

It's a classic good news/bad news moment: that fat envelope in the mailbox signifies that your child's first-choice school said yes. Then there's the deflating next moment, when the bill falls out of the welcome package. For years, the financial news hasn't been good for campus-bound students and their families. Colleges have been raising their fees mercilessly, seemingly oblivious to the declines in family incomes and 529 savings-account balances. Tuition, room and board, fees, and the occasional pizza add up to more than $50,000 a year at the pricier schools, and average more than $37,000 a year at private colleges and $14,000 at public universities.

 

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But there is some good news, too. Federal aid is expanding, and more of it is coming in the form of grants, which don't have to be repaid. Undergraduate students received an average of $8,896 in aid, including $4,656 in grants, in the 2007–08 school year. Since then, both the federal government and some college-specific programs have thrown more money into the mix. Many schools are increasing the amount they'll pay to keep their freshman classes full during the worst recession in 30 years.

You have to know how the system works to make sure your kid gets the money he needs to pay those big bursar's bills. Here's how to afford college now.

Position yourself for financial aid early.
Colleges add up all of their costs for a year of attendance, and then subtract the amount they expect the family to pay. The schools fill the gap with a mix of grants, loans, and student jobs. To maximize the aid your family receives, you have to understand how the family contribution is calculated. Some items, such as student savings accounts, high family income, or big capital gains can hurt your aid eligibility. You can get a rough idea of your expected family contribution by using the calculator at FinAid, an educational Web site (finaid.org/calculators/finaidestimate.phtml), or one provided by the Department of Education at fafsa4caster.ed.gov. You can lower your expected family contribution for freshman year with careful money management in the year before your child graduates from high school (i.e., the year ends in December, graduation is the following June). Colleges base their aid decisions on income from that year, so families who can shift income out of that year by postponing year-end bonuses or delaying the sale of winning investments until January (or later) of graduation year may be able to increase their aid eligibility. This strategy also works if you shift income sooner, and take profits by Dec. 31 of your child's junior year in high school. Money saved in a student's name can be transferred to a 529 college savings plan (which barely hurts their aid eligibility) or spent on extras like summer camp and computers. You'll have to keep this up for four years; schools reassess aid-worthiness annually.

Apply strategically.
Think about money before you choose the schools you will apply to, and don't assume that you'll save the most by going to a state school. The Ivy League schools and other top privates have sworn off most loans and promised to meet full need with grants. Private schools with big endowments can afford more generous aid packages and, in the last year, they have been spending a lot to make sure they have a full freshman class. "This year we saw a lot of want-based aid," says Seth Allen, dean of admissions and financial aid at Grinnell College, which didn't match the generous offers of its competitors. But many schools do, so apply to schools that compete with each other for the same type and tier of students.

Apply for aid.
The earlier you file your application, the better your award is likely to be; schools spend their money fast, notes private adviser Philip Malinoski of Higher Ed Strategies (higheredstrategies.com). By the end of January of your child's senior year of high school, fill out and file the Free Application for Federal Student Aid (fafsa.ed.gov), even if you have to guesstimate numbers and revise them later. Give yourself time and keep the aspirin handy: filling out a FAFSA is about as much fun as doing your 1040 on April 15. The Obama administration has pledged a new, simplified FAFSA by January 2010, but early reports say it still has as many as 120 questions. Also fill out the College Board's Profile form (profileonline.collegeboard.com), which is used by many private schools when they calculate their own aid awards. Finally, touch base with the financial-aid offices at all of the colleges that your child is applying to, and find out if they have any forms of their own for you to complete.