Westwood College has published a great explanation of the typical student’s budget.  If you have ever wanted to know where a student’s money goes, you can check it out here…

Source:  Westwood College

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There is a group called the Cooperative Institutional Research Program (CIRP).  It is administered
nationally by the Higher Education Research Institute (HERI) at the University of California at Los Angeles’
Graduate School of Education & Information Studies.  Did you follow that?  Ok, we’ll just call it a UCLA study.

The UCLA study publishes various reports on higher education.  Earlier this year, they published a report called The American Freshman, National Norms, Fall 2008.  Boy I love the way these research groups string their titles together.

Anyway, let me get back to the point.  Here are some interesting findings published in the report…

• The percentage of students who attend their first choice of college has dropped to a 34 year low in 2008 of 60.7%.

• The percentage of students who report that financial aid offers were “very important” or “essential” to choosing which school they would attend jumped from 39.7% in 2007 to 43% in 2008.

• 49.4% of students indicated they would be getting a job to help off set college expenses.  That is the highest response in the history of the survey.

• And some very encouraging news came out of the survey… 60.1% of students were applying to at least four colleges (a record high) compared to 56.4% in 2007.

Obviously finances are playing and larger and larger part in the choice of colleges.  The good news is that students are already figuring out two of the key methods to get around this problem: apply to multiple schools, and be flexible.  Hidden within this study is the solution to the growing problem of high college costs.  Who knows if these students knew they were pursuing the answer, or maybe many of them just stumbled into it.  Whatever the reason the solution is evident…

Do not fall in love with any one school.  Keep your options open as long as possible.  It is fine to have a top choice school, but don’t invest all your emotional energy into that top choice.  You must be flexible.

Apply to multiple schools.  My recommendation is to always apply to at least six colleges, up to ten is preferable.  I cannot overstate the importance of multiple appications.  This is not only your insurance against getting refused by a top choice school, but it is a key to negotiating better financial packages from all schools to which you apply.

Let me add a third to this list not evident in the study.  Always make sure you apply to colleges with generous financial track records, particularly those that meet 90% or more of the student’s financial need.

Obviously there are other strategies to saving money on college.  These three stand out in comparison to the UCLA study.

What has been your experience in applying to colleges?

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Quite often I hear from parents and students who just don’t feel like they know how to start the college search process.  Let me provide you with six steps to starting a college search.

Step 1 – Be Flexible — One of the biggest stumbling blocks to beginning the college search is starting with preconceived notions about finding the right college.  Eliminate now from your thinking that only public or only private colleges are right.  Eliminate the idea that some college beauty pageant list like US News is going to tell what the right college is.  And eliminate the idea that if the “sticker price” appears too high, the school is off the list.  Start with a blank slate.

Step 2 – Start Now — Yes, now.  The more time that you put into the college search, the better decisions will be made.  Starting early allows you to take time… have fun with the process.  If you get a head start on the process, then the student won’t feel like the search is running (or ruining) their life.  Starting early allows you to pace yourself, ask more questions, and get the right input.

Step 3 – Visit Colleges — Any colleges.  It doesn’t matter if they are schools the student is interested in, just visit them.  Go on their campus tours.  Students will gather valuable information about what they like and what they don’t like by visiting any college campus.  If there are colleges nearby where you live, then go for a campus visit.  If there is a college near where you will be travelling on a vacation, then stop by for a college tour.  And try to visit different types of colleges and universities.  Let the student see what a small town, liberal arts college like Grinnell is like.  Let them see what a 40,000 student urban campus like ASU is like.  Show them what a small college in a big city is like.  My alma matre, Jacksonville University, is 3,000 students in a city of a million.  I loved it compared to the typical Big Ten, city-wide campus of the University of Iowa where I started.

Step 4 – Ask Yourself Questions — Start asking the right questions.  Close to home, or across the country?  Big campus, or small campus?  City or country?  What major or majors might I want to study?  The college search engines on the Internet, like the one at Collegeboard.com, can help you come up with great questions to ask.  Personally, I think “where?” is one of the first questions to tackle.  You can find great schools anywhere in the country.  College is one of the few times when a person can have complete freedom in choosing where they want to live.  So you might as well pick someplace you’ll enjoy?  On the beach?  In the mountains?  Where it’s cold?  Where it’s warm?  The field is wide open.  You’ll always find great colleges no matter where you pick.

Step 5 – Make a List — Your questions will lead you to answers that are likes, dislikes, and must haves.  Start listing those answers.  As you build your list, you will be building the profile of your desired colleges.

Step 6 – Be Flexible – I started with flexibility, and I’ll finish with it as well.  Always make sure that your list is broad enough to include 6 to 10 different colleges, because that’s how many you will need to apply.  And don’t feel like the decision you make as to where you commit for your freshman year in college is set in stone.  Over one-third of college students transfer to another college at least once.  If you find out you don’t like it at a college, you can always change.

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Need Blind and Need Sensitive are admission policies that impact some students when applying to colleges around the country.

Need Blind admissions guarantee equal opportunities for admission into a college or university regardless of the student’s ability to pay for the costs at that college.  There are only a handful of colleges in the country that actually post need blind policies.  These include the likes of Harvard, Yale, Princeton, and Stanford.  These schools have very substantial endowments and do not need to be concerned about revenue from needy students.

Need Sensitive admissions will sometimes take into consideration a student’s ability to pay for the college costs when deciding to admit the student.  In actuality, the vast majority of colleges and universities are need sensitive in one way or the other.

Need sensitivity may be offensive to you.  On the surface, it would make sense that all colleges should be need blind.  After all, we live in an egalitarian society and everyone should at least be given the chance accept or refuse an offer of admission if they have the qualifications to get into that school.  But consider the following example.

Two students are on the wait list at a college.  The admissions representatives are deciding who to give those last few offers of admission to.  Student “A” will require $30,000 in financial aid in order to afford the school.  Student “B” qualifies for only $5,000 in a federal loan.  The students are equally matched in all aspects, except financial need.

Remember, these two students are on the wait list.  That means these decisions are being made late in the admissions cycle and the vast majority of financial aid dollars have already been distributed to other students.  So would it make sense to offer one of the few last remaining spots to student “A”, knowing that the school does not have the money to help the student?  Or does it make more sense to make the offer to student “B” who is far more likely to be able to pay the bill?

Although Need Sensitive admission policies may seem unfair at first glance, they are the only logical and fair policy for  colleges that do not have unlimited resources.

These policies should in no way influence you not to apply for admission or file financial aid applications at any colleges or universities.  Always file the financial aid applications no matter what.  Not filing financial aid applications will not help you.  If you are a student who is on the bubble and gets refused because of financial need, then thank the school.  They just saved you from admission into a school that you could not afford anyway.

The solution to need sensitive admissions policies is not to try and pick and choose to which schools you will file financial aid applications.  The solution is always have a sound, well thought out application strategy.  Always apply to colleges with generous financial track records.  Always file to at least one safety school; 4-6 match schools; and 2-3 stretch schools.

If you follow a sound college application strategy, you will always have plenty of great options to choose from.

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The link to this story was posted by Mark Montgomery, a colleague in Colorado.

Free Fashion Advice for College Interviews, From a $15,000 Consultant

I found Mark through Twitter last week, but I’m already beginning to love some of the stuff he comes up with.

Shannon Duff is an admissions consultant out on the east coast.  She may have very well sent out a press release herself to promote this event.  If so, this is a classic case of how PR can backfire on you and really ruin your day.

You really need to just read the article.

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Yesterday I was in an online conversation where a student started out asking, “Can you help me rank these schools in terms of financial aid…”  The first response the student received was, “It is impossible — and totally meaningless — to “rank [schools] in terms of aid…”

This is absolutely and totally wrong!  I don’t know why it shocks me when I see responses like this.  Maybe I just don’t want to believe that the old wive’s tales and bad information are as pervasive as they are.

Well… whatever the reasons are for my reaction, I can’t let this misinformation go without addressing it head-on.  You can rank, evaluate, compare colleges based upon how they treat financial aid; or how generous they are.  Let me show you how…

First of all, you need to estimate your expected family contribution (EFC).  There is a calculator at Collegeboard.com that works fairly well.

Now we need the cost of attendance (COA) from the schools you are interested in.  Each school will have a different cost of attendance.  This can be found at the colleges’ websites, Collegeboard.com, Kiplinger, or a dozen or more other websites.

Subtract the EFC from the COA to find out what your financial need (FN) is at each of the schools.  The formula looks like this…

COA – EFC = FN

Now multiply the financial need at each school by the schools’ financial track records: % of need met; % of gift aid; % of self help.  This will provide you with how much money the school is likely going to give you, and consequently, how much you are likely to pay at that college.

And Voila!  You now have a fairly accurate estimation of your out of pocket costs and at each of the colleges.  You can now see which schools are generous and which are not.  You’ll be surprised.  You are proabably going to find out that some of the schools that look cheaper in the beginning will actually wind up costing the most in the end.

The Secrets to Real College Savings has a far more detailed explanation of how this calculation works.  I recommend you get a copy.

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Twice in this past week, I saw comments on one of the large online college prep forums about people making IRA contributions so they could lower their income as reported on the FAFSA form.  There’s a really big problem with this… it doesn’t work.  The FAFSA (free application for federal student aid) doesn’t work that way.

This is symptomatic of one the bigger problems with the FAFSA, and that is people equate tax regulations with financial aid regulations.  In reality, they have very little in common.

Making contributions to retirement accounts (IRA’s, Roths, 401k’s, annuities, SEP’s, Keogh’s, etc) does nothing to lower income reported on the FAFSA form.  The form specifically asks about money contributed to these types of retirement accounts so it can be added back into the calculations.

The FAFSA wants to know about any discretionary, pre-tax contributions.  These contributions are considered available money since the parents or the student have control over whether or not they make the contributions.  And therefore, they are considered fair game.  This does not include contributions to traditional pension programs.  Those contributions are controlled by employers and are not considered
available money.

Part of the confusion is money already in the retirement account is not considered on the FAFSA.  For example: a parent makes $5,000 and saves the $5,000 in a savings account.  The $5,000 will be assessed as income, and it will assessed as an asset because it is in a savings account.  However, if the parent takes the $5,000 and puts it in their 401k; the income will still count, but the asset value in the 401k will be excluded.

Many individuals conclude that if the asset value is not counted, then the contribution from income must not be counted as well.  As you can see, that is incorrect.

So how do you mitigate the effects of income on the financial aid forms?  Well unfortunately, unless you are a business owner or farmer, you really don’t have much flexibility in the income arena.  So far, I’ve never found anyone who thinks it’s a great idea to take a $10,000 pay cut, so I can save them $5,000 on college.

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There are 14 big myths of paying for college.  This quick video highlights myth #12 – Private Colleges are always more expensive than public colleges.

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Most people know that their assets (savings, checking, stocks, bonds, mutual funds, etc.) all contribute to the expected family contribution when they complete the FAFSA form.  However, most don’t know what the Education Savings and Asset Protection Allowance is, nor how it helps them.  We typically refer to this table as the Asset Protection Allowance or the APA.

This table is available only the the parents of the students.  It is the amount of cash and other assets that a parent can accumulate before those assets are assessed towards their expected family contribution.  For FAFSA purposes, those assessed assets do not include home equity, retirement accounts, annuities, small businesses, family farms, or cash value in life insurance.  Those assets are exempt from the calculation in their entirety.

Here are two examples of how the APA helps…

Family #1: 2 parents – oldest parent is 45 – $30,000 in cash and investments.

The family’s APA is $48,700 (see the table below).  $30,000 is less than their APA, therefore none of their cash and investments will counted towards their expected family contribution.

Family #2: 1 parent – age 42 – $30,000 in cash and investments.

The family’s APA is $18,600.  $30,000 minus $18,600 equals $11,400.  Therefore $11,4000 will be included in the calculation to determine the student’s expected family contribution.

Keep in mind that only parents have an APA, student’s do not.  As soon as a student has $1 in their name, it will be counted towards their EFC.

The APA will be adjusted for inflation periodically.

This table was produced with information from Table A5 of the 2009-2010 EFC Formula Guide from the Department of Education.

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Last week, I got on my College Financial Watch soapbox and blasted the lack of financial literacy in this country as a prime contributor to the problem of student debt.  Later in the week, I was part of an online discussion again discussing what is reasonable for a student to borrow for college.  I recommended that the student get a copy of Rich Dad, Poor Dad by Robert Kiyosaki and improve his financial literacy.  I never knew that recommending someone beef up their financial knowledge would be so vehemently criticized, but it was.

In January of 2008, President Bush formed the Advisory Council on Financial Literacy.  In May 2008, the council conducted a nationwide youth financial literacy contest on the web.  Over 46,000 high school students participated.  The students had to answer 35 basic questions about money, banking, and financial products.  The average score was 56%.  Did you follow that?  As a whole, our students are failing financial literacy.  And we wonder why there is such a high level of student debt.

Do you want to know what is even more tragic.  The online discussion I mentioned above was at a website dedicated to helping students get into college and provide answers for financial aid questions.  There are people out there who are acting like they understand finances, but are actively trying to keep students in the dark.  Now the action is likely out of ignorance, but the motivation does not matter a hill of beans to the outcome.

We have to face facts.  The majority of students and adults as well in this country are woefully undereducated when it comes to personal finance.  Before you start complaining about student debt, you need to get yourself and your student educated on the matter.  That is why I am now including two books from Robert Kiyosaki in my Recommended section at www.RealCollegeSavings.com

Rich Dad, Poor Dad

and

Rich Dad, Poor Dad for Teens

Go get these now.

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