Financial Aid: 7 Big Myths

1. I make too much to qualify for aid.

Sure, your annual income is considered in the aid calculations, but so is the price of the college. You probably won’t get aid if your child will go to a public university in your state and your family’s income exceeds $80,000. But you might qualify for nearly $25,000 in need-based aid from one of the most expensive private colleges even if you earn $150,000 to $200,000, says Myra Smith, executive director of Financial Aid Services at the College Board. In fact, a family with household income just under $450,000 could be eligible for aid if they have three or more children, with two of them in expensive colleges.

2. Filling out the forms is a waste of time.

While the main purpose of the Free Application for Federal Student Aid (FAFSA) is identifying low- and middle-income families qualifying for federal Pell Grants, some families who file FAFSA and are denied federal assistance can receive considerable aid from the schools themselves. Completing the College Board’s CSS/Financial Aid PROFILE form, used by roughly 270 private colleges, could also land you generous grants.

3. I saved too much to qualify for aid.

This might be the most stubborn financial aid myth. Colleges don’t want to strip families of all their savings. So the aid formulas build in asset protections when determining how much parents must pay. They ignore retirement savings, for example, when toting up assets. FAFSA also lets families shield a great deal of their college savings through an asset protection allowance. Generally the financial aid formula calls for parents to contribute 5.6 percent of their assets per year toward the cost of college.

4. My home equity will kill any chance of receiving aid.

In truth, you could live in a palace and it wouldn’t disqualify you from getting aid at most schools. FAFSA doesn’t ask about home ownership. PROFILE does, but home equity won’t eliminate many families from qualifying for aid. That’s because PROFILE colleges typically use a formula that caps home equity value in its family-contribution calculations, often at an amount equal to 2.4 times family income. With that formula, the college would count just $375,000 of $600,000 in home equity for a family with $150,000 in income.

If your home has appreciated a lot, ask private colleges how they factor in home equity when determining aid, advises Paula Bishop, a financial aid consultant in Bellevue, Wash. Their answers may differ dramatically. Some schools, such as Princeton University, ignore home equity. Others, such as Boston College and American University, include 100 percent of it as an asset.

5. Schools don’t care how many kids I have.

Actually, having two or more children in college significantly increases your chances of receiving aid, says Monisha Perkash, CEO and co-founder of TuitionCoach.com. In fact, it could lower your “expected family contribution” (the estimate of the family’s ability to pay for college) by 50 percent.

Take a family whose expected family contribution is $22,000 for their oldest child’s first year of a $50,000 college. Financial aid could cover the $28,000 difference. If a second child will attend a $50,000 college next year, too, the Expected Family Contribution for each child would be cut in half to $11,000 apiece. Then, each student could receive up to $39,000 in aid.

6. My aid award is accurate.

Like everyone, aid officers make mistakes. If the numbers you receive are out of line with competing schools, contact the aid office to see if there was an error. One of Bishop’s clients was initially denied aid from Scripps College because the school improperly inflated the expected family contribution, forgetting to use Scripps’ formula to cap the family’s home equity. After Bishop caught the mistake, the expected contribution dropped from $40,000 to $28,000 and the family got the aid called for in the formula.

7. My aid award is final.

Not necessarily. School policies on negotiating aid awards vary wildly. Some schools are very upfront, such as Carnegie Mellon, whose Web site practically invites applicants to haggle: “We are open to negotiating financial awards to compete with other institutions.” Many schools will negotiate aid awards in order to ensure that their freshmen slots are filled.

But parents who try negotiating with highly selective private schools routinely fail, according to Seth Allen, dean of admission and financial aid at Grinnell College. At these elite schools, admission officers generally won’t budge if they think an aid package is fair.