College financial aid is very competitive. The recession has increased the demand for scholarships, grants, gifts and loans. Over 65% of undergraduate college students receive financial aid, but they must be diligent to get it. One little error could derail your child's college funding. Here are a few financial aid issues to look out for.
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- Underestimating the Cost of College
Sticker shock is common for prospective college students and their parents. For the 2009-2010 school year, the average tuition paid after financial aid was applied was $11,900, according to The College Board, a non-profit college admissions organization. Tuition at four-year institutions outpaced inflation by 4.9% over the past decade.
In addition to room & board and books, ancillary college expenses including travel back and forth to school and activity fees such as sorority and fraternity dues must be considered in the total cost of a college education. The National Center for Education Statistics reported 2007-2008 non-tuition college costs for four-year public colleges averaged $11,800. Parents can use college calculators to better estimate the cost of a college education.
- Not Asking for Help
Parents often overlook possible gifts from friends and family to help finance children's education. Grandparents are an excellent source for association-based scholarships, as well as cash. The MetLife Mature Market Institute reported 83% of grandparents offered cash to grandchildren in 2009. Start while your child is young by letting family members know you've started a college savings plan and request donations to it in lieu of expensive toys for your child.
- Missed Deadlines
Parents and students must be vigilant in order to receive the maximum amount of funding. Students who fail to completely answer all financial aid application questions or supply requested documentation by the given timeline are not eligible for funding. The Free Application for Federal Student Aid (FAFSA) must be completed by the deadline listed on the organization's website (www.fafsa.ed.gov). Each state also has an application deadline for state grants and scholarships, but one of the most important dates to remember is the one for your particular college. School financial aid offices combine all awarded funding for a complete aid package, so all data must be submitted on time.
- Applying Too Late
The amount of scholarship and grant monies available fluctuate with the economy. Historically college endowments earn an annual return of 4%, but for the 2009 fiscal year, college endowments lost an average of 18.7%, according to The National Association of College and University Business Officers' (NACUBO) 2009 Commonfund endowment study. States that offer college scholarship programs continue to struggle with declining revenue. Forty-six states have already slashed 2011 budgets, forcing some to decrease college scholarship funding. Students who wait until the last minute to apply may receive little or nothing at all, simply because most of the funds for that school term have already been allocated.
Students should start researching and applying for scholarships before they begin their senior year in high school. Some scholarships are available to students depending on how far along they are in their academic career (for example second-year college students). Students should pay close attention to the definitions of eligibility to maximize the amount of financial aid. (To learn more, see our Student Loans Tutorial.)
- Lying on Applications
Families may be tempted to fib in order to meet needs-based financial eligibility criteria for scholarships. Most applications require supporting documentation. Citing misleading information delays the application process, and may result in a denial of the application.
- Accepting too Many Loans
The amount of student loans increased 5%, or $4 billion, from 2007-2008. When financiers present the amount of money they are willing to loan for college, carefully consider the amount actually needed. Students should resist the temptation for larger loans just for extra spending money. Loan money is paid back with interest, so students who accept more loan money than the required tuition and fees may spend years paying back unneeded dollars. The Department of Education reported cumulative lifetime default rate in 2007 was 8%.
- Poor Academic Records
Academic records are permanent. Scholarships and grants based on academic merit often require students to continue to achieve at a certain level in order to be eligible for additional monies. High school valedictorians who slack off during their freshmen year of college may get a rude awakening when scholarships are not granted for their sophomore year.
For example, Georgia's Hope Scholarship requires a 3.0 grade point average (GPA) in order to remain eligible for scholarship funding. Students should understand the academic thresholds for maintaining maximum financial aid.
- Unnecessary Spending
Back-to-school marketers tout everything from backpacks to toaster ovens for college-bound students. Students and parents should be realistic about what is needed in order to start the school year and gradually accumulate items as they are required. Consider coordinating with roommates about which items each student will supply.
The Bottom Line
It is possible to successfully fund a college education. But, financial aid mistakes can be costly. Parents and students need to be aware of the pitfalls and take steps to avoid them. Families are encouraged to start early, research funding options and have a plan. Resources available include the Department of Education's Federal Student Aid website, state scholarship websites and the College Board. (To learn more, check out 5 Surprise Changes To The Student Loan Program.)