The families of John Hancock College Preparatory High School, on Chicago's South Side, are lucky to have Hector Gonzalez, a 32-year-old family outreach coordinator. When I met him on a listening tour with the President's Advisory Council on Financial Capability a few years ago, I was absolutely blown away. Hector was engineering a college turnaround for the school's predominately Latino and lower-income population. The school's seniors had earned just $5,000 in scholarship money in 2008. Now, scholarships are up to $7.5 million annually -- with an astonishing $8.6 million claimed by the Class of 2013. Coaching and prodding from Gonzalez, along with college and career coach Rosalyn Pedraza, have led families to fill out the FAFSA, stay on top of deadlines and ultimately send their kids to college.
But as kids across America are celebrating their college acceptance letters, parents of high school seniors are freaking out over the quarter-million-dollar question (as some private school sticker prices hit $60,000): How are we going to pay for it?
Don't expect your kid's overburdened guidance counselor to have the answers. (They can't all be like Gonzalez and Pedraza!) The job falls to you -- and it has to be done now. By the end of this month, almost all decisions will be in. So April is the time to visit, weigh your options and decide what you can truly afford and how you'll pay before deposits are due by May 1. With some help from the proven experts at John Hancock Prep, here's my version of What to Expect When You're Accepting.
1. Submit your FAFSA (and CSS) NOW. If you haven't already taken this crucial step, do it ASAP, since financial assistance is often first-come, first-served (deadlines for state aid are generally this spring). FAFSA submission unlocks not only federal loans, but many other forms of aid: federal and state grants, scholarships, tuition waivers, work-study, etc. You can choose up to 10 schools to receive your online application. About 400 private schools and scholarship funds also require the College Board's CSS/Financial Aid profile application (which costs $25, plus another $16 per each additional school, though fee waivers are automatically awarded based on need.)
Get help if you need it. The FAFSA uses terms and requests information that you may not know off-hand, such as your Adjusted Gross Income (AGI). For tips, download Filing the FAFSA by financial aid expert Mark Kantrowitz, a free step-by-step guide that demystifies the application. Kalman Chany's terrific Paying for College Without Going Broke covers the FAFSA and the CSS. (Still lost? Check out Q&As on the official FAFSA Help site, and more at Kantrowitz's site, FinAid.org
Remember, FAFSA first, taxes second. Don't let taxes keep you from getting your FAFSA in ASAP. If you have a complex return -- or plan to file for an extension -- just base your FAFSA data on your 2012 tax return, or estimate your 2013 Adjusted Gross Income now and adjust the numbers later.
2. Financial Aid Award Letters: Read the fine print. If your kid got accepted to a school that uses the new Financial Aid Shopping Sheet, that form will give you a clear sense of the school's net price for you (that's Cost of Attendance -- tuition, room, board, fees, books, etc. -- minus grants, loans, work-study, and scholarships). "Think of [net price] as a discounted sticker price," Kantrowitz advises in Filing the FAFSA. But two-thirds of schools still fail to make the net price clear. And that's where it gets tricky. I have a friend whose son got excited when a small liberal arts school sent him a letter announcing his "financial aid award." Only when he read the fine print did he realize that the $5,500 "award" was for a Federal Stafford loan that the family would have to pay back.
3. Beware of one-year financial aid awards. A misleading term to look out for: "renewable." Some financial aid is meant as a one-time enticement for entering freshman, while other aid is renewable each yea r-- and might be contingent on your kid's GPA. Make sure you read the letter super carefully and understand the conditions. Then, confirm by calling the school's financial aid office to ask how the scholarship can be renewed. Is it based on GPA? And even if your kid earns those grades, is it certain the money will be there each year?
4. If you're accepting student loans, stick with the federal ones. Federal loans tend to have much lower interest rates than private loans, no hidden fees and better repayment terms. Stafford Loans -- direct loans from the government -- have the best current interest rate: 3.86%. They're limited to $5,500 for freshmen, $6,500 for sophomores and $7,500 for juniors and seniors. If your child's FAFSA shows enough financial need, these Stafford Loans will be subsidized (the government pays the interest while the student is in school). And students with exceptional need can qualify for an additional $5,500 in Perkins Loans, which charge 5% interest. Beyond that, schools will offer parents Direct PLUS Loans at a fixed rate of 6.41%. They're more expensive than your kid's loans (and not eligible for loan consolidation, repayment or forgiveness plans), but still a better deal than private loans charging as much as 13% or higher.
5. Don't raid your retirement savings. Pulling money out of your nest egg can result in taxable income that ultimately reduces your child's financial aid eligibility when you fill out the FAFSA the following year. And not just that; it'll reduce your retirement kitty, which you're going to need. The best gift you can give your kid is to not be a drag in your old age... so don't touch that 401(k) or IRA.
6. Make time for a heart-to-heart talk with your kid. I know it's hard; you don't want to say no, you want to give your kid everything. But it's time to weigh everything -- the schools, how much you'll contribute, how much in loans your kid is willing to take on, etc. Once you have all the aid offers in front of you, consider your family's circumstances (will another child be in college too, or any other upcoming big expenses?) and talk about your kid's goals. For example, could an undecided major thrive at a cheaper in-state public school and save up for a prestigious grad program? For a more focused student, will a big-city private school with a strong pre-law program and access to great internships be a better choice -- even at a higher cost? And don't freak out if your kid's eyeing a low-paying profession like teaching or non-profits. They may be eligible for federal student loan repayment programs, which can ease the burden.
7. Save tuition by choosing a school that accepts your kid's college credits. If your child has taken AP or honors classes, see if the schools give college credit. I know one high achiever who graduated in three years because he entered school with almost two semesters' worth of credits from AP classes, plus a waiver for his college's foreign language requirement. Even if your child's top choice has a high net price, you may be looking at a lower overall cost of attendance (for three years) compared to a lower-cost school that doesn't accept his AP credits and thus requires four full years. (Make sure to avoid any junior-year surprises by checking with each school's relevant academic departments to verify which requirements are already fulfilled.)
8. Plan a visit, if you haven't already. If it's financially feasible, tour your child's top-choice schools where he has been accepted before May 1, when acceptance deposits are due. Check out a class, hang out with students in a dorm, sample the dining hall and schedule a meeting with the office of admissions and financial aid. Sometimes, that school with the lesser name but bigger financial package will look even better when seen first-hand.
9. Last but not least, get on the phone and negotiate. If your kid has received financial aid offers from schools other than his top choice, call the school he really wants to go to and tell them about your options. You've got nothing to lose, and the college may decide to woo you by increasing its financial aid package. You should definitely call if your situation has changed due to divorce, a lost job, etc. Have all your financial information ready when you make the call. Be super polite and clear, and not at all pushy. As my favorite expert on this topic used to say to me: Remember that you're talking to a financial aid officer who may make $40,000 a year, so don't cry poverty if you're making $100,000.
What other items are on your "paying for college" to-do list? What advice have you found most useful?
This post was originally featured on Mint.com.
Beth Kobliner is the author of the New York Times bestseller Get a Financial Life: Personal Finance in Your Twenties and Thirties, and is currently writing a new book for parents, Make Your Kid a Money Genius (Even If You're Not), to be published by Simon & Schuster. She was recently appointed by President Obama to the President's Advisory Council on Financial Capability for Young Americans. Visit her at bethkobliner.com, follow her on Twitter, and like her on Facebook.
© 2014 Beth Kobliner, All Rights Reserved