Many of the misconceptions that people possess about the college process revolve around financial aid. So with the college admission season heading into high gear, I am sharing the four financial aid myths that are probably the most common.
Myth No. 1: I make too much money to qualify for aid.
You shouldn’t automatically assume that you won’t qualify for need-based assistance. How much income you earn is only one part of the equation. What also matters is the price of a particular college. For example, some families that don’t qualify for financial aid at moderately priced state schools may be in line for considerable help at pricey universities.
You can obtain an early assessment of whether your family might qualify for aid by using the expected family contribution calculator at the College Board. A calculator will produce an estimated Expected Family Contribution, which is what colleges would expect you to pay, at a minimum, for one year of school. Don’t wait until your child is a senior in high school to use this calculator!
Most colleges won’t care if you own a house and won’t count home equity against you if you do. That’s because the majority of schools rely on the federal aid application, the Free Application for Federal Student Aid (FAFSA), which doesn’t ask parents if they own a home.
Many colleges will limit the amount of home equity they consider when they evaluate a family’s ability to pay. Colleges will typically impose a cap that rarely exceeds 2.4 times a family’s income, according to Paula Bishop, a CPA in Bellevue, Wash. who assists families with financial aid issues.
How a college will treat a family’s home equity will sometimes depend on how interested the school is in an applicant.
If you want to see how a school treats home equity, use the institution’s net price calculator. I wrote a post this summer that explains how one dad used net price calculators for about two dozen schools that determined how each school assessed home equity. Here is that college blog post:
Myth No. 3: I have saved too much in my child’s college fund to qualify for aid.
In reality, few American families who apply for financial aid are penalized for their savings. Here is a post that I wrote about this myth: Why Saving for College Won’t Hurt Your Chances for Financial Aid
Families who file the FAFSA automatically receive an asset protection allowance based on the age of the oldest parent. The closer you are to retirement, the larger the allowance. A 55-year-old parent, for instance, has an asset allowance of $53,400. Here is the latest chart from the federal government:
Myth No. 4: Completing financial aid forms is a waste of time.
Most families should complete financial aid applications, because without filing these documents, they will have no hope of receiving need-based aid. What’s more, there children won’t be able to borrow through federal student loans.
The FAFSA will become available on January 1 for the 2013-2014 school year. The application should not take long if you gather the necessary documents before you sit down at your computer. You can find out what information you’ll need to complete the FAFSA by checking out the FAFSA on the Web Worksheet.
The latest PROFILE is available every fall. While the FAFSA is free, the PROFILE costs $25 for the initial application and college report, and all additional reports are $16 each. Some low-income families will be eligible for fee waiver.
Lynn O’Shaughnessy is the author of The College Solution: A Guide for Everyone Looking for the Right School at the Right Price.