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One Must for All College Savers

Adam Zoll

Adam Zoll: I'm Adam Zoll for Morningstar.

When it comes to financial aid, many upper-income families assume there is no point in even applying, but that may not always be the case.

Here to talk about financial aid considerations for upper-income families is Peter Herman. Peter is the president of The Collegian Financial Group, a Northbrook Ill.-based financial services firm that specializes in college planning.

Peter, thanks for being here today.

Peter Herman: I'm glad to be here, Adam.

Zoll: So Peter, let’s say that a client comes into your office and says my child is going to an expensive college, I really wish they were eligible for financial aid, but I know that I make too much money. I don't even think there is a sense in applying. What do you say to that client?

Herman: Great question, Adam, and what we say to that client is, every client should apply and complete the financial aid forms in order to qualify for any of the grant money they need to.

But the other part is, if somebody is earning less than $100,000, they will get more financial aid. Somebody earning above, that's merit money that we’re looking at, and those schools, private schools and some of the public schools, if they want this child, will have the merit funds, but those are usually for the kids and the parents that fill out and complete the financial aid forms. So you have to do it; that's what I'm saying.

Zoll: Are there certain thresholds, you mentioned $100,000, certain thresholds beyond which you would not even suggest trying for financial aid, or in the other direction, below which you're fairly confident financial aid would be a possibility? Can you give us some rules of thumb in that regard.

Herman: Rule of thumb, if you’re earning less than $50,000, your child is going to get the maximum aid. And I use that range with $100,000, because there are families … that already have kids in college, so there are certain, what we call, discounts available; they may be eligible for some financial aid.

But anybody--we had a child last year and this is the biggest surprise to me--that was very bright, did not get merit money but they got what we called subsidized Stafford Loans, because some of the schools are replacing some of their grants with the subsidized loans, that means the government is paying the interest while the child is in school. And that happens in some case. So, in all cases, they should fill it out because many of the grants or merit aid is dependent upon them at least completing the form. So parent should do that right away.

Zoll: What role does the public college versus private college play in this? Do you have a greater chance of financial aid at a more expensive private school?

Herman: That's another great follow-up question, because the private schools have the highest sticker price, as we call it. Public schools, lower price, but the private schools do have more money to give based on endowments, etc.

So for a child that they want and need, there are what we call substantial discount, or merit, funds available, and the parent should look at that. The key is applying to the right schools--and I want to bring that up--in order to get the merit money. … Many of the public schools, like our own state schools here in Illinois, there's not that many funds available and the price is $30,000, unless you qualify for financial aid. There's not much merit money. Whereas some of the private schools have a substantial amount, and [students] can go net-net cost less than an in-state school.

Zoll: So how important is the state in which the school resides that you're applying to?

Herman: It is important from a couple of aspects. One is, if they have a budget crunch, that may impede some funds, both financial aid and merit money, all the way through school. And we look at a four-year process, and unfortunately, we’re seeing--and this is more true with public than private, and I can't give you the statistics--but it appears now that kids are not graduating in the four years. Iowa, I did see that statistic, more than half are better than five years before they graduate. That's an expensive proposition. Whereas the private schools do a better job of trying to get the kids out in four.

Zoll: Interesting. So that could have a bottom-line impact on your entire thinking.

Herman: That's correct. And that's why we suggest, and in the newspaper, everyone is suggesting, because the average kid in the Chicago area is applying to about five schools, that they should apply to eight to 10, because the schools compete, too. So that's important, and they see that on the financial aid forms.

Zoll: Let’s talk a little bit more about merit-based aid. So we’re talking about grades, we're talking about extra-curriculars. What about non-school related activities? What sort of things are going to really stand out to a college?

Herman: Well, … the public schools for the most part--and you alluded to this in the previous question--look at two things, for the most part--grades and your board scores, ACT or SAT, and schools accept either one incidentally, even though we're focused in the Midwest on the ACT. Nationally, more people take the SAT.

The private schools, which we said have more money, look also more with the activities and the courses in high school that the child is taking. Not only their activities in school, if there is leadership, volunteer work. So it's a combination of factors, besides the grades and the boards, that go into play for both acceptance and also on the financial package that is awarded,

Zoll: To summarize for upper-income families, by all means, they should be applying for financial aid, even if they think that it's unlikely that they are going to get it.

Herman: Correct.

Zoll: Peter, thank you very much for taking the time to speak with us today about financial aid.

Herman: Thank you very much, Adam. It's a pleasure being here.

Zoll: For Morningstar, I'm Adam Zoll.