Mon, 24 Mar 2014
College affordability is becoming more problematic, which is why most families should seek scholarships or other financial aid ASAP, says college-planning expert Mark Kantrowitz.
Adam Zoll: From Morningstar, I'm Adam Zoll. Rising college costs have more families crossing their fingers when it comes to financial aid. Here to talk about trends in financial aid is Mark Kantrowitz. He is publisher of Edvisors.com, a college-planning website.
Mark thanks for joining us today.
Mark Kantrowitz: Thank you for having me.
Zoll: Let's talk about the financial aid landscape. How is it changing? What are we seeing in terms of who is getting financial aid and how maybe that differs from the way it was five or even 10 years ago?
Kantrowitz: There is long-term trend toward declining buying power of grants. The grants are not keeping pace with increases in college costs. State funding of higher education has been declining on a per-student constant-dollar basis. Even money from the federal government has been anemic in its growth. Over a 10-year period, The Federal Pell Grant is increasing at less than the consumer price index.
It's not only not keeping up with tuition inflation, it's not keeping up even with regular inflation. And so this is causing the affordability of college to go downhill and increasingly is pressing low-income students out of college education. Students are being forced to make up the difference with their own resources, but since family incomes have been flat, they are increasingly turning to student loans. Student loan debt at graduation increases every single year. That's causing more problems with college affordability.
I'm predicting that interest rates on new student loans will increase July 1 because they're based on the 10-year Treasury and that rate has been going up. So even the debt's going to become less affordable.
Zoll: Let's talk a little about merit-based aid versus need-based. Need-based aid of course is tied to the student's and the family's financial picture, whereas merit-based aid is a little bit more ephemeral in terms of what the criteria are. How are schools using merit-based versus need-based aid these days?
Kantrowitz: The long-term trend of the grants that colleges give, more and more of it is shifting from need-based aid to merit-based aid, or non-need-based aid. Colleges use these grants as a form of leverage to try to achieve recruiting goals. Sometimes this is trying to recruit academically talented students, but more and more often it is trying to attract wealthier students because even with that grant to that wealthy student, that student is paying more net to the college than a low-income student might.
It helps the college's financial picture, but it also is pricing low-income and moderate-income students out of a college education.
Zoll: What are some ways students from various economic backgrounds can maximize their financial aid eligibility and make sure that they are able to get every dollar they can in grants from the state or federal government or from the institution itself?
Kantrowitz: The first is to start searching for financial aid whether need-based or scholarships as soon as possible. Many families wait until the spring of their senior year in high school to start applying for financial aid. By then they have missed half of the deadlines for scholarships during the senior year alone, and there are many scholarships that you can win in younger grades. There is the Jif Peanut Butter Scholarship for making a sandwich with peanut butter, and there is the National Spelling Bee, National Geography Bee, and National History Day Competition. Doodle for Google is another scholarship competition open to younger students.
There are many scholarships that you can win in elementary and middle school. There are also scholarships you can win after you've enrolled in college. Start sooner. With the FAFSA you want to start as soon as possible after Jan. 1.
Now let's say that there is some unusual circumstance about your finances, such as you had a salary reduction last year, or, God forbid, the death of a wage earner. You have high dependent-care expenses for a special-needs child or an elderly parent. You have high unreimbursed medical or dental expenses, or even private K-12 tuition for a sibling.
Let the schools know about these circumstances. Some schools will call it a professional judgment review; some will call it a special circumstances review or a financial aid appeal. It's a process by which the college can review the documentation of your unusual circumstances and make adjustments to the data elements on the FAFSA to accommodate for the financial impact of those circumstances. So if you've had a salary reduction, they might switch you from the prior year's taxable income to an estimate of your income during this upcoming calendar year. That, in turn, will result in a new expected-family contribution, which, in turn, will result in a new financial aid package.
Zoll: Another trend that we've seen in the college-planning landscape is a greater push for transparency in terms of college costs--what the actual cost of attendance is and how schools are spending that money. Does that have any effect on financial aid in that whole system.
Kantrowitz: So far it hasn't had much impact on financial aid; it's had some impact on family choices as they become more aware of just what that college is going to cost them. In some cases it's influenced their decision about where to send the child. If the net price of the college differs by $1,000 or less, they go with whichever school has a better perceived quality. If it's $5,000 or more, they are generally going to attend the less expensive school. If it's in between they tend to agonize over the decision.
There are these net price calculators that colleges since October 2011 have had to have on their websites. There is an effort toward standardization of the financial aid award letter called the Financial Aid Shopping Sheet, where you can see at a glance on a comparable basis what that net price is at each of the colleges. And then there's this college scorecard effort that the Obama administration is pushing, which is going to rate colleges on a variety of factors, such as the affordability, the extent to which they enroll and graduate low-income students, and a variety of other factors. It's still work in progress.
Zoll: Mark, lots of good food for thought and lots of good trends that bear watching, when it comes to college financial aid. Thanks so much for joining us today.
Kantrowitz: Thank you for having me.
Zoll: I'm Adam Zoll, thanks for watching.