Uncovering Secrets Of Financial Aid

When the Breen twins of Lexington, Ky., started applying to college last fall, they just assumed that schools would look at their dad's new job as a controller for a hospital company in Tennessee, and the fact that their mom was going to lose her job as a special-education assistant when she moved to join their father at his new job, and provide enough grants to allow them to attend.

"People in the middle class live pretty much paycheck to paycheck," says Matthew Breen, 19. "They can't come up with $35,000 a year. That's absurd."

Then, in March, Matthew and Ryan started getting thick letters - and their first lesson in college economics. While some of the schools patched together enough grants so that they could just cover their costs, others gave the Breens little option but to take out big loans.

"It was really unnerving," Matthew says. "Your financial situation doesn't necessarily dictate how much aid you'll get."

Never has the gap between the simplistic assumptions of applicants and the cutthroat reality of college financial aid been so wide. A report issued late last week documented just how typical the Breens' situation is. The National Center for Public Policy and Higher Education said 43 of the 50 states deserved F's in college affordability for sticking families with higher tuition and making degrees less affordable. Of course, many government officials, school administrators, and educational lenders do try their best to help students afford college. Some elite colleges, for example, are becoming more generous, ensuring that the top students will get enough aid to pay their tuition. And a growing number of states and towns are funding full-tuition scholarships at community or state colleges for good students.

Unfortunately, however, more and more schools are adopting secret and sophisticated aid strategies that often end up increasing families' out-of-pocket college costs. Meanwhile, the rules governing student loans and educational savings plans have changed so dramatically recently that those who fail to adapt will end up paying more than they should have to.

Free ride

But a U.S. News analysis of hundreds of 2006 financial aid award letters, as well as interviews with researchers, college aid officers, lenders, financial planners, and students, reveals strategies that can help make a college degree more affordable.

The most important new strategies are those that yield "free money"-grants and scholarships. Most colleges tell families that the size of a financial aid award depends upon the student's ability to pay and academic performance. That's strictly true only for two kinds of schools: elite private colleges and popular public universities. Well-endowed, top-ranked schools like Princeton simply pick among the world's best students, then provide enough grants to cover anything the students really can't afford. And cash-strapped, application-flooded public colleges such as the University of Massachusetts-Amherst spread around what little scholarship money they have according to fairly simple need, merit, and athletic criteria.

But for thousands of lower-ranked schools scrambling for smarter kids, more generous donors, and increased tuition revenue, aid decisions are far more complicated-and secretive. "Most people would be shocked to learn how much goes into scholarship" decisions, says James Nondorf, vice president for enrollment at Rensselaer Polytechnic Institute.

College math

They would indeed. Hundreds of colleges are employing Ph.D. economists, demographers, and even rocket scientists to develop mathematical formulas using as many as 100 different factors about each student to calculate the least amount of financial aid necessary to get the most desirable students to enroll.

These enrollment managers analyze such factors as the student's gender, hometown, intended major, parents' education, high school, and applications to other schools to decide the size of grants. They are increasingly able to accurately identify the students likely to enroll without any aid. Some enrollment managers say they can predict within $100 how big a scholarship it will take to attract the kinds of students the college is short on-such as females at engineering schools, rural kids at urban colleges, budding archaeologists at institutions with empty seats in classics lecture halls, and the like.

Colleges typically keep their unique formulas secret to prevent competing schools from outbidding them, to outflank parents who want to game the rules, and to give themselves wiggle room to make exceptions for special cases.

But even enrollment managers concede the secrecy causes many families to end up mistakenly paying more for college. Worse, some experts fear that colleges may be tempted to abuse their information advantage to manipulate students into paying more than they would otherwise. Rupert Wilkinson, a former American studies professor at the University of Sussex, England, who recently published a history of U.S. financial aid, says that most aid officers "came in wanting to do good. But they need to keep their jobs and meet the institution's purposes," which increasingly means raising more tuition revenue and reducing financial aid costs. "As financial aid has become more complex, it grows more vulnerable to being exploited," Wilkinson says. "There are so many things that can be used dishonestly."

Families who've been through the school of hard financial aid knocks say, however, that a few simple strategies can make college much more affordable.

The starting point is the way colleges determine how much aid students need. The government uses the information a family provides on the Free Application for Federal Student Aid, or FAFSA, to estimate how much the family can afford to spend on tuition-the so-called expected family contribution, or EFC. Many middle-income families are shocked to learn that the government expects a family of five with two students in college to spend anywhere from 22 to 47 cents (rising with income) of every after-tax earned dollar above about $27,000. On the other hand, the federal need formula, used by all but a few hundred private colleges, rewards those who save via real estate or other investments. Home equity is exempted from any contribution. And families with two parents in their early 50s are expected to spend no more than 5.6 percent annually of any nonretirement savings over about $50,000.

The difference between the government's EFC and the full cost of attendance is the need that the government and colleges attempt to fill with financial aid. Families with low incomes and EFCs of $3,850 or less, are eligible for federal Pell grants of up to $4,050. More-affluent families with higher EFCs may qualify for need-based grants from states or colleges.

The good EFC news is that because private colleges have become so expensive, even upper-middle-class families with six-figure incomes sometimes get need-based grants from schools. The bad: The vast majority of colleges fail to provide enough grants to make up the difference between a family's EFC and the cost of attendance. Overall, only half of all college students get any kind of grant. Those grants average slightly over $4,000, which leaves the typical student with a gap of almost $6,900. That can be bridged with federal student loans and part-time work.

But students who find schools looking for their particular characteristics can get schools to fork over bigger grants. The U.S. News analysis of 2006 aid awards and interviews with college administrators reveal many surprising factors students can exploit to increase their chances of getting scholarships:

Academics

Most schools give bigger grants to students who prove their abilities through grades, test scores, Advanced Placement classes, and other indicators. But an analysis of more than 300 award letters sent out by over 100 public and private colleges around the nation reveals a strategy likely to improve a student's chances for merit aid. No matter what the student's SAT score, those who applied to schools in which their scores put them in the top 25 percent of the school's student body tended to get more and bigger grants. On average, letters to students who were in the top 25 percent contained grants averaging $11,144, meeting 81 percent of the student's need. Award letters to students whose SAT scores were at least 200 points below the top 25 percent floor offered grants totaling only $7,800, meeting just 64 percent of need.

Typical were the awards from New York University, where 25 percent of last year's freshmen had (two-test) SAT scores above 1420 and the total annual cost of attendance this year is likely to top $48,000. Of seven awards examined, six failed to provide enough grants to allow the student to attend without borrowing. One student with a family EFC of about $16,000, a grade-point average of 4.1, and a below-average SAT score (for NYU) of 1300 received no grants. The only student to get the full amount of needed aid scored a very high 1520 and had a GPA of 3.9. Because that student came from a family with an EFC of slightly more than $39,000, the school grant of $10,000 made up the gap in the cost of attendance. Barbara Hall, head of NYU'S admissions and financial aid offices, says that NYU doesn't promise to meet the need of any student and generally caps its grants at $25,000. But while NYU does tend to offer better packages to students who have better grades, it also offers bigger grants to lower-income students, without regard to their academic record. "We are concerned about access," she says.

Students who want to increase their odds of being admitted and scoring big aid packages should apply to a couple of safety schools-in-state public colleges and perhaps one or two private schools in which their grades and scores put them at the top of the class. But they shouldn't necessarily end up attending the school that costs them the least, says Sandy Baum, an economist at Skidmore College and the College Board. "For some students, being a big fish in a little pond is a great idea," she says. But others would benefit more by opting for pricier schools with better students and more challenging courses.

Competition

Schools are more likely to give generously to students who set off bidding wars. David Lang, an economist at California State University-Sacramento, found preliminary evidence that students accepted at several schools get as much as 30 percent more in grants than similarly qualified students who get into just one college. The head of financial aid for a medium-sized private university in the Midwest, who did not want to reveal his own school's practices, said many aid officers will look at a student's FAFSA to see what other schools are listed. "It is not so much how many schools as what schools you've applied to," he says. If the student has listed schools with similar costs and rankings in the same geographic region, the officer may say: "Wow, we compete with those, and we have to up the ante," he says.

Applying to several schools also pays off for students who think their initial aid offers were too low. More schools now up awards to students who have better offers from competing schools. In April, Harvard, which gives aid only to meet need, announced that it would match more-generous awards to low-income students.

Gender

At math-heavy schools like Rensselaer Polytechnic Institute, where females are in short supply, being a woman is one of about 100 factors that can increase a student's award. "We love women," Nondorf says. But he says other qualities can boost aid as much or even more, joking that the scholarship jackpot would be hit by "a harpist from North Dakota who is a woman and applies to nuclear engineering." Laura Wontrop, a junior majoring in mechanical engineering, says she wishes that applicants were simply judged on their merits. But, she adds, "my dad told me to use what I've got." So she's getting merit and need-based grants from Rensselaer.

A growing number of universities are using aid to address the opposite problem: a shortage of males. Just 43 percent of all current college students are men. And at not-quite-elite liberal arts schools, the male shortage is becoming acute. "At just below the top tier, men are such a scarce commodity that those schools who engage in differential packaging end up putting more money toward the males," says John Maguire, a physics professor turned enrollment manager.

Talent or major

Students know, of course, that there are scholarships set aside for those with in-demand athletic, musical, or other skills. But they may not realize that there is extra aid for students who choose majors that governments, schools, or donors want to encourage. The federal government is starting to hand out grants of up to $4,000 to low-income students who study math, science, or foreign languages. And many colleges funnel extra aid to students who beef up majors the school wants to strengthen. Kellie Laurenzi, dean of enrollment services at Robert Morris University in western Pennsylvania, says she awards more aid to students who apply to the school's new majors such as actuarial sciences or media arts. "We are trying to entice students" who wouldn't have considered the school before it started those courses of study, she says.

Ethnicity or race

Although court rulings and local laws have made some schools leery of race-based scholarships, schools are eager for diversity of all types and thus use aid to attract students who can bring cultural differences to a campus.

Geography

Many schools try to recruit from far away so that students get to meet all sorts of people. But some schools, like the University of Redlands in Southern California, give bigger grants to locals. "We're about meeting demand," says Craig Slaughter, director of financial aid. "We think kids from Wisconsin will be willing to pay more. But we are competing with the Cal States" (the low-cost in-state universities) for California residents.

Timing of the application

Most schools admit a higher percentage of students who apply early. Only a handful of those schools, however, also give those early applicants better treatment in financial aid. Students who risk waiting and apply along with everybody else at the beginning of the year may lower their odds of admission but raise their chances of getting bigger offers from schools, says consultant Maguire.

High school

If previous graduates from the student's high school performed well at the college, or the high school is known as a tough grader, many colleges bend the rules to offer more merit aid, says Lucie Lapovsky, a financial aid economist who served as president of Mercy College in New York from 1999 through 2004. Colleges also often compare all admitted students from each high school's class to make sure the valedictorian gets more than the student ranked, say, 25th.

A student's desire to attend a particular school

Schools can draw surprisingly accurate conclusions about how much a student wants to attend from indicators such as the parents' college record, whether a student has visited a campus, and even in what order the student listed schools on the FAFSA. A study by educators in the state of Washington showed that the higher the student placed the name of a school on the FAFSA, the more likely the student was to attend-and thus, the less financial aid the school might need to offer. Enrollment managers say only a handful of schools use information on a student's campus visit or FAFSA ranking to determine aid, since most schools don't want to scare students off from doing research they need to make the best college decision.

The growing complexity of and competition for financial aid can't help but be daunting. But smart students like the Breens are succeeding by turning the competitive tables on colleges. The Breens each applied to six schools, to increase their odds of hearing from a school that wanted what the boys, both top students and football players, had to offer. In the mix for each: schools that promise to meet 100 percent of admitted students' need. That strategy was expensive, says their father, Gerard. The family probably spent at least $1,000 on applications and campus visits. But it paid off. Matthew ended up at Georgetown and Ryan at the University of Richmond, both of which meet the full need of their students. "We're going to struggle" to cover the family's EFC of almost $35,000 a year for the two students, Gerard Breen admits. "But they did fantastically. I was really proud."

TIP

Boost your odds of getting aid by applying to schools that compete with your first-choice college and also to those where your grades and scores would put you at the top of the class.

By Kim Clark With Emily Brandon