5 Additional Deadly Mistakes Most Parents Make When Applying For College Funding – And How to Avoid Them…

Tuesday, May 16th, 2017

In this series I am going to cover 5 additional deadliest mistakes almost every parent makes when trying to get money for their child's college education.

If you make any one of these mistakes, it could end up costing you thousands or even tens of thousands of dollars in lost funding that you might have been eligible for.

I don't want to see you making these mistakes if you don't have to. That's why I’ve decided to devote this “College Tip” to teaching you how to avoid these common mistakes and make sure you get the maximum amount of money from every school your child applies to.

So, without further ado, let's discuss...

"5 Additional Deadly Mistakes Most Parents Make When Applying For College Funding - And How to Avoid Them..."

Mistake #1: Not understanding the difference between "included assets" and "un-included assets" for purposes of filling out financial aid forms

Reality: Certain assets are counted much more heavily in the financial aid formulas than others. For example, savings accounts, CD's, stocks and bonds are all included and asked about on the Federal Financial Aid form. However, it does not ask about the value of annuities or cash-value life insurance anywhere on that same form.

Mistake #2: It doesn't matter where I keep my money; it's all counted in the same way

Reality: Nothing could be further from the truth. Where you keep your money could mean the difference between you getting $10,000 in financial aid or getting nothing! For example, money in the child's name is weighted much more heavily than money in the parent's name. If you don't know how to legally and ethically position your money properly for purposes of financial aid, you could end up losing thousands in financial aid! Even the people reading this who have enough money saved to fully pay for your child to go to college, wouldn't you rather "save" some of the money you've "saved" if the school is willing to pick up part of the tab?!?

Mistake #3: "My CPA or tax preparer is qualified to fill out my financial aid forms - I'll let him/her do it"

Reality: Unfortunately, CPAs and tax preparers are experts at tax planning and preparation - not financial aid planning. For example, a CPA or tax preparer might suggest that you put some or all of your assets in your child's name to save money on taxes. While this advice is well meaning, it will usually kill most if not all of your chances of getting financial aid. Also, CPAs and tax preparers are not trained in filling out financial aid forms. In many cases, they will unknowingly fill out these forms improperly (i.e., omitting social security numbers, entering an incorrect phone number or misspelling a name, etc.), and these "minor" mistakes will bump your financial aid forms. If this happens, you will have to re-submit these forms all over again, and you will probably end up losing thousands in financial aid since it is awarded on a first come, first served basis.

Mistake #4: Waiting until January or even worse after January of your child's senior year of high school to start working on your college financial aid planning

Reality: Since financial aid is based on your previous year's income and assets, it is imperative to start your planning as soon as possible before January of your child's senior year. If you want to legally set up your income and assets so you can maximize your eligibility for financial aid, you must start working on this, at least, one year in advance - preferably in the beginning of your child's JUNIOR year of high school. The longer you wait and the closer it gets to your child's senior year, the tougher it gets to set up your financial picture without creating a "red flag" for the colleges and universities. It is also important for you to know what your "Expected Family Contribution" is so you can start saving for it. And, you should also know which schools can give you the best packages before you start visiting and applying to them. My advice is if you haven't started planning, DO IT NOW!

Mistake #5: Going Through The Financial Aid Process By Yourself Because It's "Cheaper"

Reality: If this describes you, the colleges and Federal Government are going to love you! This allows them to keep control over the process instead of you, the parent, understanding how the process works and taking back control from them. It always amazes me that people will readily use a doctor when they get sick, a lawyer when they get sued, but suddenly when they are going to send their child to college and spend between $14,000 - $34,000 per year, parents want to save themselves a couple of dollars and do it themselves. Unless you spent the last 5 - 10 years of your life studying and understanding the financial aid process, there is no way you are going to know how to get the maximum amount of money from each school. And, if you do try it yourself, you'll probably spend countless hours trying to figure it out. The moral to this story is "Don't Be Penny Wise And Dollar Foolish!" Use an expert who can help you through this process and make sure you get everything you're entitled to. (If you still insist that it makes sense to handle this yourself, I have a list of 10 books that I recommend you read word for word before even attempting to navigate your way through the financial aid jungle). On top of that, I would recommend reading the HERA (Higher Education Re-authorization Act), which is 400 pages of the smallest legal type you have ever seen and will only take you a couple hundred hours to read!

Check your email next week for the next “College Tip” in my series where I will be discussing 7 strategies to help you get the maximum amount of money for your child's college education!

Until then...

The 5 Deadliest Mistakes Parents Make When Applying For College Funding

Wednesday, May 10th, 2017

The 5 Deadliest Mistakes Most Parents Make When Applying For College Funding—And How to Avoid Them...

In this series I am going to cover 5 deadliest mistakes almost every parent makes when trying to get money for their child's college education.

If you make any one of these mistakes, it could end up costing you thousands or even tens of thousands of dollars in lost funding that you might have been eligible for.

I don't want to see you making these mistakes if you don't have to. That's why I've decided to devote this "College Tip" to teaching you how to avoid these common mistakes and make sure you get the maximum amount of money from every school your child applies to.

So, without further ado, let's discuss...

"The 5 Deadliest Mistakes Most Parents Make When Applying For College Funding—And How to Avoid Them..."

Mistake #1: Most middle and upper-middle class parents assume they won't be eligible for financial aid because they own a home and make over $75,000 per year.

Reality: Most families with incomes ranging from $50,000 - $150,000 per year who own homes are eligible for some form of financial aid. There is over 150 billion dollars available each year from the Federal Government, the states, colleges and universities, and private foundations and organizations. You just have to know how to get your "fair share". Unfortunately, most parents give up before they even start and assume they won't be eligible. This is exactly what the government hopes you will do so they can keep more of these funds. Don't make this mistake!

If you fall into this category, make sure you apply; you'll probably be eligible for SOME money.

Mistake #2: Focusing your time and energy on a private scholarship search instead of spending your time trying to qualify for "need-based" financial aid.

Reality: Private scholarships make up only 2% of the money available to you to help pay for your child's college education. The other 98% comes from the Federal Government, the state you live in, and the colleges and universities your child is applying to. Therefore, you are much better off spending your time and energy going after the 98%, rather than spending your time looking for the crumbs! These so-called "scholarship searches" you read about are normally scams and a complete waste of money. They charge you an arm and a leg and don't deliver. However, if you still insist on at least looking for some scholarships, call my office and we will give you a website that provides a free scholarship search.

Mistake #3: Assuming only minority students, athletes, and academically gifted students get financial aid.

Reality: Nothing could be further from the truth! "Need-based" financial aid is solely awarded based on "financial need" which is calculated by taking the cost of attendance at a school and subtracting the family contribution (which is the minimum amount the government feels you can afford to pay based on your income and assets and your child's income and assets). Whatever is left over after you subtract these two numbers is your "financial need" or eligibility for financial aid at a particular school. If you haven't noticed, this has nothing to do with a student's ethnic background, athletic ability, or grades. It's purely based on this simple formula:

COA(Cost Of Attendance) - FC (Family Contribution) = FN (Financial Need)

Mistake #4: Picking colleges and universities without paying attention to where your student lies in comparison to the rest of the student body.

Reality: To increase your chances of getting the best possible financial aid packages, it is imperative that you pick schools where your child lies in the top 10% of the incoming freshman class with respect to their GPA and SAT/ACT scores. Although schools give financial aid based on your calculation of "need" at their school, they will definitely give preferential packaging (i.e., more FREE money, less loans) to students who lie in the top 10% of the incoming class. The reason they do this is to attract the better students to their school. Use this to your advantage and try to apply only to those schools where your child would fit into the top 10% category.

Mistake #5: Assuming all schools are created equal and will be able to give you the same amounts of money.

Reality: All schools are not created equal and will not be able to give you the same financial aid packages. Some schools are well endowed and get a lot of money from alumni and corporations. These schools have more money to award and are generally able to meet most or all of a student's financial need at their school. Other schools, like state universities, get no private funds and rely solely on state and Federal funds to help fill a student's need at their school. In many cases, these schools leave students short and give them less money than they are eligible to receive. It can actually end up costing you more to send your child to a "cheaper" school if they don't have the money to meet your need. It is very important that you know each school's history of giving money before you ever apply, so you're not blown away when you get a bad financial aid package from your child's top school choice.

Check back next week for the next “College Tip” in my series where I will be discussing 5 additional deadliest mistakes almost every parent makes when trying to get money for their child's college education. Until then...

New college loans target parents…

Tuesday, April 12th, 2016

Have you seen the latest college loan expose from the Wall Street Journal?

It starts....

"Squeeze the Parents: New Student Loan Goes Straight to Mom and Dad. As the cost of college climbs, private student lenders are rolling out loans targeted to parents.

As rising tuition costs pile ever-higher debts on students, lenders and colleges are pushing for an alternative: Heap more on their parents.

An increasing number of private lenders are rolling out parent loans, which allow borrowers to get funds to pay for their children's education without putting the students on the hook."

Isn't this just so noble of these lenders. Sacrifice the parents to give the kids an education. Gold star for these companies. I KID!

I can't help but cringe at the parents in the article who are taking on $40k per year in parent loans (with a 10-year payback). All so they can send their child to Stanford.

This isn't going to end well for them, the monthly payments alone are going to be $2k per month in just a few years. Ouch!

That's going to be brutal on their cash-flow, lifestyle, and possibly ruin their retirement. Somebody needs to track down this family and tell them there's a better way. The SET for Life Solution™ way. This is what we specialize in here at College Planning & Funding Strategies.

Let's really take a look at this...

bank of parentsLenders see the new product as an area of growth in an otherwise sluggish lending environment. Colleges are helping push them in part because of a quirk in federal calculations. Unlike ordinary student loans, the parent loans don't count on a scorecard in which the US Education Department discloses universities' median student debt at graduation. That can ease the pressure to keep tuition increases in check at a time when heavy student debt has become a political issue.

Education loans in general, whether for students or parents, are spreading out the costs over time; they are NOT cutting college costs.

The average annual cost of a four-year, private college, including room and board, has climbed 53% in the past 10 years, to $43,921, according to the College Board. At public, four-year schools, it is up 61%, to $19,548 for in-state students.

Total student and parent college debt rose to $1.23 trillion at the end of 2015, more than double the level eight years earlier, according to the Federal Reserve Bank of New York. Despite parents' contributions, however, large numbers of students are emerging from college with debt loads that critics call unsustainable.

So, what is a family to do? When it comes to saving and paying for college, College Planning & Funding Strategies can help make a college education an affordable reality.


“The PLUS Loan Problem”

Monday, March 28th, 2016

PLUS loans are a BIG problem for families.

At first, they appear to be the right thing to do. They're readily available. They're easy to get. And the payments are manageable... at first.

But then years 2, 3, or 4 roll around.

And that's when it becomes obvious that the payments are spiraling out of control.

This US News article nails this point...

"But parents need to think about a borrowing decision like this through to graduation and beyond, before signing off on that first loan. A $20,000 loan for freshman year may sound manageable, but multiply that by the number of years you expect your student to be in school and the number of college bound children in the household and suddenly you owe $160,000 in Parent Direct PLUS loans, assuming you only have two children.

That works out to be about a $1,800 monthly payment under a standard 10-year plan. Parent PLUS loans aren't eligible for most income-based repayment  options."

$1,800 per month in payments would crush most families. Not to mention it would seriously impede their ability to save for retirement as well. And yet, so many families end up with this problem.

This is where our SET for Life Solution™ comes in. And why our advice and service is so valuable. We help families avoid this parent PLUS loan land mine.

Full article here: U.S. News & World Report, Education

And detailed information on parent PLUS loans here: PLUS Loans / Federal Student Aid

P.S. I didn't even get to what might be the worst part, the "loan fee" for every dollar of PLUS loan's a family takes out.

I've highlighted below the current interest rate (6.84%) and the "loan disbursement fee" (4.272%), which is alarmingly high...


FAFSA Trouble

Monday, March 21st, 2016


FAFSA Trouble: Why it's harder to complete financial aid applications this year

New FAFSA PIN changes are causing more problems.

Can’t say it is a surprise since we reported on this earlier in the year.

Now mainstream media is reporting on the story…

Washington Post Reports on Financial Aid Issues

It’s important to understand these FAFSA problems.

One of the biggest benefits of our services is timely and accurate filing of all financial aid forms.

This saves families time, headaches, and potentially a lot of money!

Every one of our packages includes a free FAFSA filing.

That’s a HUGE benefit in light of all the mistakes we see families make on the FAFSA.

What changes to the SAT mean to your child…

Thursday, September 18th, 2014

SAT Hated

Everyone is abuzz with the talk of the College Board’s announcement that big changes are coming to the SAT in 2016. According to David Coleman, president of the College Board, “The redesigned SAT will focus on the knowledge and skills that current research shows are most essential for college and career readiness and success.”

Starting in Spring 2016, students will take a new SAT – a three-hour exam scored on the old 1,600-point system, with an optional essay scored separately. Evidenced-based reading and writing, Coleman said, will replace the current sections on reading and writing. The math section, too, will be predicated on research that shows that there are “a few areas of math that are a prerequisite for a wide range of college courses” and careers. Coleman conceded that some might treat the news that they were shifting away from more obscure math problems to these fewer fundamental skills as a dumbing-down the test, but he was adamant that this was not the case.

It’s difficult to predict exactly how these changes will affect test takers but, as Coleman stated, one of the main goals of the test is to help students who don’t have access to test prep resources beyond what is available to them in school as the focus of the test becomes more practical and real-world-focused. How colleges and universities will react to the new test also remains to be seen. The weight placed on the SAT and ACT in the college admission process has always varied from school to school.

Certainly this will be a hot topic among students, parents, college planners, and educators (teachers/tutors) alike. And if you have a child in the 9th grade or younger, the news goes beyond the professional to the personal.

First and foremost, while change is uncomfortable, I look forward to the opportunities that the new SAT brings. In short, the new SAT will look more like the current ACT, which has grown in popularity since its inception. When the yearly number of ACT tests administered finally surpassed the yearly number of SAT tests administered for the first time last year, I think the College Board felt compelled to react… and it has. To David Coleman’s credit, he actually started his due diligence in the overhaul of the SAT to have it better reflect what students should be learning in school around the time he was appointed as the board’s next president in July 2012.

Below are a few articles that explain the forthcoming changes: 

Key Shifts of the SAT Redesign -Washington Post

SAT to drop essay requirement and return to top score of 1600 in redesign of admission test -Washington Post – March 5, 2014

A New SAT Aims to Realign With Schoolwork -New York Times – March 5, 2014

The Story Behind the SAT Overhaul -New York Times – March 6, 2014

5 Ways to Evaluate a Financial Aid Letter

Thursday, March 13th, 2014

Tip of the Week: Take at least one standardized test in your junior year for both the SAT and ACT. By taking both exams, you will see where your strengths lie and be able to determine if you want to take both exams again or only focus on one of the exams for the next test date. Also, taking the tests before the end of your junior year will allow you ample time to study over the summer and retake the exams early fall. awardlet2

5 Ways to Evaluate a Financial Aid Letter

This is the time of year when parents are nervously evaluating student financial aid packages. It doesn't help that financial aid letters can be confusing and, at times, intentionally so. Some colleges presenting a lousy student financial aid offer can try to hide it behind confusing abbreviations and missing information. Adding to the confusion, financial aid letters aren't standardized which make them hard to compare.

In a recent survey by Fastweb, more than half of college students and parents who were surveyed said that the college financial aid letters from colleges were difficult to compare.

Don't be fooled. Here are five things you can do to decipher a college financial aid award:

  1. Determine a school's real cost. Schools calculate what's officially called the cost of attendance differently. Some colleges might look cheaper on paper because they only include tuition and room and board as costs on a financial aid offer while other schools are more thorough and add transportation, books and more. An easy way to find a college's costs is to look at its profile on the College Board website.
  2. Look for free money. What matters to you is your out-of-pocket costs. You determine this by subtracting any grants or scholarships you receive from the school's cost of attendance. Grants could come from the federal and/or state government and from the college itself.
  3. Don't be fooled by loans. Sometimes schools will try to trick a family by making it look like the financial aid package contains a lot more money by inserting loans that aren't clearly marked. A loan, for instance, might be abbreviated as "ln." If you have loans in your financial aid package -- and most students will -- find out what the interest rates and terms are, as well as monthly and total payments.
  4. Ask how private scholarships are treated. When teenagers realize their financial aid packages aren't fat enough, they will often look for outside scholarships. Obtaining these private scholarships can sometimes back fire, as I've mentioned in a previous post: 'If a teen wins a private scholarship, the college could shrink his or her financial aid package by the amount of the award. So if a child wins a $3,000 scholarship, the college could cut the aid package by $3,000. Why is a student penalized for winning a private scholarship? Federal rules require that a college consider outside scholarships when calculating a financial aid package. Ideally you'd want the college to reduce the loan portion of a student's financial aid award and not grant money. You need to ask schools about their policies.'
  5. Contact the school. If you are confused about a financial aid award call the school and get the answers that you need. If you would prefer an independent evaluation of your financial aid award, contact us.

Most financial aid award offers are presented to the student in the month of March. If you have received your award and have not been offered enough money to attend the college of your dreams, we may still be able to help.

Ants and Grasshoppers: Are savers victimized by the financial aid process?

Saturday, February 1st, 2014

Tip of the Week: Use your upcoming days off wisely. Presidents’ Day and Spring Break will be wonderful times to schedule visits to your colleges of interest. Colleges often have perspective student events for days like these where they anticipate a high volume of visiting students. You should also check in with your high school to see if they allot days off for students visiting colleges that will not work against your attendance.antgrasshopper

Ants and Grasshoppers: Are savers victimized by the financial aid process?

"My son and his friend attend the same private college, and our families have about the same income. I wondered how his friend's family could afford that school, since they live in a more expensive house, take nice vacations, and in general seem to spend a lot of money - compared to us, anyway. Since our son was born, we have tried to live below our means and save money for his education. We were shocked to find out that his friend's family was getting many thousands of dollars more in financial aid. This can't be fair, can it?"

Everyone remembers the fable of the ant and the grasshopper. The industrious ant worked hard to store food, while the grasshopper lived for the present moment. In the fable, the ant's strategy proved to be superior, since he had food when it was no longer readily available. In today's financial aid process, however, industrious savers seem to be penalized when aid is awarded. What's going on, and is it worth it to save?

The perception that families that have saved money get less financial aid is, of course, based on fact. Savings increase the expected family contribution (EFC). At first glance, this seems unfair - diligence in saving money should be rewarded, not penalized, right?

The fact is that colleges base financial aid on the income and assets at the time you apply for assistance, looking back at most a year. If you were a millionaire three years ago and a pauper now because you blew your money in an around-the-world gambling junket, you are as much a pauper as the one who has been poor forever.

Furthermore, in most cases colleges can't really judge the choices you make as to how to spend your money - they can only take into account your income and assets. There IS an element of fairness in this, particularly as far as income is concerned. At the same income level, and assuming the same asset base and other chanracteristics, the family contribution toward college costs will be the same, whether the family chooses to live modestly or beyond their means; the family whose budget isn't already stretched to the breaking point will be able to meet college expenses with much less pain than the spendthrifts.

Assets, though, are a different matter. All other factors being equal, a family that has accumulated no financial assets will receive more aid - regardless of the exact reasons why they failed to anticipate the expense of college. While some families may be in this situation due to devastating medical expenses, lengthy spells of unemployment, or other "good" reasons, others lack assets simply because they spent their income as it was earned. That asset-poor families get more aid may strike diligent savers as unfair, but colleges simply can't evaluate each family's spending patterns over the last decade or two and apportion aid on that basis.

Does This Mean We Should't Save, or Spend What Assets We HAVE Saved?

This discussion won't cover specific strategies for asset deployment before applying for financial aid, but rather address the basic question of "ant vs. grasshopper" - is it better to not save at all, and hope for the best at financial aid time?

In general, the answer is "no" - it is indeed better to save for anticipated college expenses, even if these assets will be "taxed" by the financial aid process. There are several reasons why this is the case.

First, assets in the parent's name are just one part of the EFC calculation, and a relatively modest one at that. Parental savings are "available" to pay college expenses at a rate of 6%, which means that a $50,000 nest egg would increase the EFC by just $3,000. While this is substantial, it is not nearly as big an impact as parental income (salaries, business earnings, etc.) Income is calculated at a much higher percentage, and except for low-income, high-asset families, is likely to be the bigger factor in their EFC.

Second, while assets usually take many years to accumulate, a family won't know about eligibility for financial aid until the college years are quite close - a "no asset" strategy could backfire if, due to a job promotion, family income goes up enough to make financial aid unlikely.

Third, financial aid is often a mixed blessing - at most colleges, a significant portion of the aid may come in the form of student loans. While sometimes these may have better terms or a lower interest rate than would be available to a typical borrower, they are still loans which must be paid back.

Finally, a family that attempts to minimize liquid assets in the hope of qualifying for more aid is leaving itself vulnerable to many kinds of misfortune unrelated to college: unanticipated job loss, non-reimbursed medical expenses, temporary disability, etc. Most financial advisers recommend having at least six months of family income in an easy-to-access, liquid account to handle emergencies of this type. A family without savings is in a precarious situation - while some families may find themselves in this situation because of circumstances beyond their control, it is foolhardy for a family to consciously plan to minimize savings.

Conclusion. In short, despite the financial aid penalty paid by savers, it is still better to be an ant than a grasshopper. Naturally, wise deployment of the accumulated savings can still help minimize a family's EFC (some asset types aren't considered in the EFC calculation, for example) - we specialize in working with families on how to maximize aid and minimize the burden of college costs.

Develop Your Scholarship Game Plan

Thursday, January 16th, 2014

Tip of the Week: Start saving for college and learn how to manage a monthly budget. Once you are in college, many, if not all, financial decisions will be up to you.  Learning to manage your own budget at a young age will help you become a financially responsible adult. It is important to manage your money effectively and prioritize your financial obligations.collegecheck

Develop Your Scholarship Game Plan

To mount an effective scholarship campaign, the first thing you need is a winning game plan. Start by implementing the following four key action strategies.

1. Plan to apply for as many scholarships as possible.

Some students make the mistake of thinking that they maximize their chances of winning by pouring all of their energy into one or two scholarships.

But applying for scholarships is partially a numbers game. A variety of factors outside of your control affect the outcome of any given award. Only by applying for large numbers of scholarships can you minimize such factors, and maximize your chances of winning. In my own family's scholarship quest, we ended up applying for about three dozen awards.

Even if the scholarship prize is only a couple of hundred dollars, I still recommend entering the contest. This might not sound like much in the context of an entire college tuition bill, but the extra cash can help cover the cost of books for a term, or help pay for that spring break “research” trip to Cancun.

In addition, winning smaller awards provides you with additional credentials that you can include in applications for larger scholarships.

2. Develop a suite of generic reusable materials.

When applying for large numbers of scholarships, creating a suite of generic reusable materials saves a great deal of time and energy. By having this suite to draw from, you will be able to focus less on just completing application requirements, and more on customizing and fine-tuning the material you’ve already prepared.

More than just a reduction in your workload, reusing and rethinking old materials can mean vast improvements as you repeatedly refine and edit the same work. By employing this strategy, you gain the opportunity to fine-tune your materials with every submission. And take it from me—your tenth draft will be far better than your first.

To create this suite of generic materials, first seek to develop standard essay responses to perennial scholarship application themes—such old favorites as college plans, career goals, and future contributions to society.

Next, survey the scholarship landscape and isolate common themes and requirements (whether it is a similar essay question or a comparable extracurricular activity worksheet). Attempt to bridge multiple applications with every sentence you write or form you prepare.

Also, go back into your archive of old scholarship applications (you’ll develop one quickly) and try to recycle essays and other past materials. Don’t just recopy such passages verbatim; instead, try to rethink, improve, and hone everything to fit the criteria of each new contest.

3. Leverage school work and class time.

If you have to do the schoolwork anyway, why not make it count toward your scholarship quest? For example, if you’re asked to write an essay on a book of your choosing, you may want to select The Fountainhead by Ayn Rand. This way, you’ll have a submission ready to go for the annual essay contest on this famous novel. If you’re assigned a self-reflective essay, pick a personal topic that fits in well with scholarship applications you’re pursuing. Moreover, teachers can serve as a helpful source of early feedback for these potential scholarship submissions.

This technique isn’t restricted merely to classroom assignments. Most schools offer some type of independent study credit, in which you can pursue your own project under the guidance of an adviser. At many schools, you’re even allowed to use a class period during the day to pursue this work. Use the time to complete self-initiated projects that add to your record and improve your chances of scholarship (and college admission) success.

4. Learn from past scholarship winners.

In playing the scholarship game, it’s extremely useful to have a roadmap of what it takes to win. To obtain this roadmap, make a point of reviewing past winning applications, essays and other materials. Many times, you can request sample winning entries from the organization administering the scholarship program.

In addition, it’s useful to interview past winners of scholarships you plan to enter. Ask them about their unique qualifications, the approach they took in filling out applications, and any insights they have about particular scholarship contests you’re planning to enter. Many scholarship contests will provide a list of past winners upon request. The best way to master the scholarship game is to learn from those who have played it well.

Uncertainty Principle for College Costs

Monday, January 13th, 2014

Tip of the Week: Make a New Year's resolution regarding your academic goals. Use the start of the new year as motivation to improve at least one area of your academic record.  For example, if one of your goals is to improve your GPA, create a plan of action to study more and manage your assignments effectively.problem solved

YWerner Heisenberg shook up the world of subatomic physics with his Indeterminacy Principle, more commonly known as the Uncertainty Principal. In a nutshell, he told his fellow physicists they could never know the exact position and momentum of a subatomic particle because the measurement process itself changed the value of one of these properties.

Heisenberg felt that his ideas had relevance beyond the subatomic world, and he published numerous philosophical writings. It is safe to say, though, that he did not anticipate the relevance of indeterminacy to our modern financial aid system in the United States.

Here's my new Uncertainty Principle for College Costs:

Middle class families can't accurately plan for future college costs, because the planning process itself affects those costs.

If this sounds silly, read on...

The Financial Planning Oversimplification. Many financial planners make accumulating assets for college sound relatively simple - make a few assumptions about what kind of school little Johnny will attend eighteen years hence, plug in an inflation rate for college costs and an expected rate of return on one's investment, and bingo! - you have a monthly amount that you must set aside to be able to afford college.

Indeed, these planners aren't entirely wrong. In the absence of our complex financial aid structure, it would really be that simple. Sure, one might guess wrong on inflation or interest rates, but the family's college nest egg would still be in the right ballpark. However, the situation is more complicated for the middle class. Here's why:

True projections of college costs should include financial aid. While it is a wise and conservative assumption to ignore financial aid issues in projecting the future cost of college, the actual cost experienced by many middle class families does, in fact, reflect grants, scholarships, and loans.

Asset accumulation can affect aid, and hence, college costs. As one projects costs, and starts saving to meet them, the actual cost that will be incurred in the future goes up. This doesn't mean one shouldn't save, but it is important to note that such saving will change the actual cost in many cases.

Few families will be able to accumulate sufficient assets to pay for the entire cost of college for all family members. With the cost of a four year education at many private colleges pushing $150,000, and even the cost of attending state schools rising faster than general inflation, relatively few middle class families will be able to do what the financial planner suggests - through regular contributions, accumulate savings that will pay in full the cost of college for all of their children.

There are many reasons for this. Most obviously, families with young children are often not yet established in their professions, and are experiencing the high costs of raising a family. Allocating large sums to savings is often impossible without major sacrifices. Another factor in today's economy is retirement savings. Several decades ago, it was possible to count on a combination of an employer's retirement plan and Social Security for a comfortable retirement. Today, most employers have eliminated "defined benefit" retirement plans, and Social Security is far less certain than it is for today's retirees. Hence, families that do have some income available for savings feel compelled to invest that in retirement-oriented assets rather than college funds.

Predicting future income is difficult, if not impossible. Today's business environment is a factor here, too. Not long ago, it was common for the family breadwinner to spend an entire career at one company, meaning that income would vary with career advances or setbacks, but could still be projected with some degree of certainty. Today, not only are one-company careers passé, it is common for an individual to have multiple careers. Even the largest employers are no longer stable and predictable. Even IBM said goodbye to "lifetime employment" with massive layoffs. These days, it is often difficult to look even a few years ahead and be entirely confident of one's income level, much less many years in the future.

Other financial decisions affect college costs. An owner of a small business may decide to transfer financial assets to her children in order to keep them from the reach of creditors or prevent these assets from being targeted in lawsuits. While this decision may reflect sound business judgment, it may also dramatically affect future college costs due to the higher EFC impact of student assets.

School selection and admission are difficult or impossible to know in advance. While some parents may buy their toddler a Harvard or Purdue t-shirt, the reality of college search and college admissions is a different story. Often, students are deciding on their field of interest late in their high school career, or even remain undecided. Of course, admission to the most selective schools is notoriously unpredictable. At the same time, the student who appeared to be bound for his state school might be a surprise admit to Princeton, or might decide to major in violin or marine biology and require a program not available in-state. In short, trying to guess years in advance where a student might decide to attend, or might be admitted, is fraught with uncertainty.

Assets aren't always assets. The uncertainty involved in predicting the final choice of colleges creates yet more variables. Assets like retirement accounts, home equity, etc., may be ignored by one school but counted as available assets by another. Since one can't predict which school will be the student's final choice, one can't accurately project what assets will be considered in EFC calculation, and hence, what actual college costs will be.

Conclusion. If a family is likely to be even marginally eligible for financial aid, the number of variables involved in projecting costs make it impossible to accurately or reliably project actual college costs.

The best strategies involve either attempting to save for the "worst case" basis - costly school, zero financial aid, or saving as much as possible in ways least likely to result in a higher EFC.

Problem Solved! Although we do not possess the 'College Funding Magic Wand' and our strategies are not a good fit for some families, our sole mission is to help individuals and families become financially set for life -- without taking unnecessary risks. We specialize in strategies that help families get all of their children through college in a comfortable manner, become debt free while ensuring they have enough money to supplement their senior years. To see if we can help you solve the college funding problem, schedule one of our "College Readiness Reviews"!