By Manuel Fabriquer, May 2009

SoCal Life After 50

While most high school students expect to head off to college next fall, the unfortunate reality is that many have not effectively planned for the increased expenses. In some situations, college is postponed because a family is considered “well off” in assets—finances are considered more than ample but the cash flow is tight and there isn’t extra money after the essentials are covered.

And, those few families who have managed to save through the traditional methods (529s, UTMA), are learning to their chagrin that their carefully saved dollars are not only at risk in these uncertain times but are actually an impediment when applying for financial aid.

FULL PICTURE
How can that be? Conventional wisdom dictates families set aside college money from a child’s young age so by the time he or she is ready for advanced education, the money will have safely grown. The truth is that many people are in the position of making critical financial decisions and choosing colleges without the full picture.
Families who have other resources (IRAs, home equity, stocks) generally believe that financial aid is not available to them or, worse, are chipping away at their own retirement funds to pay for their children’s college.
But there are creative methods— not widely known to parents, guidance counselors or even financial advisors—for handling finances that can help anyone, no matter how much or how little money they have.

AIM HIGH
One key is identifying those private universities that distribute higher than- average percentages of gift aid.
Families should not shy away from the sticker price of the private colleges. Rather than assuming these
Schools are out of reach, many people are surprised to find that if they qualify for both need-based and
Merit-based aid, in many cases they can expect to pay roughly what it costs to attend a state institution.
For example, Chapman University in Orange, California, typically awards very high need-based aid for those who qualify. The average aid is 79-80 percent gift (free!) money. The University of Southern California is another great example. This school gives an atypically high percentage of gift aid and merit-based aid.

EVERYBODY WINS
Here’s a scenario to consider: If a family has an Expected Family Contribution (EFC) of $15,000, the cost of the college with room and board is $48,000. The family could roughly expect to pay out of pocket $21,930. This is without any merit based aid, which is determined by GPA, SAT/ACT scores. If the student is awarded merit based aid this can decrease the cost by $16,000, leaving the total cost to the family just under $6,000 to attend a prestigious private school! By not considering this option, the family might decide on a local state university where they might spend $15,000 for the total cost of attendance. The more expensive the school, the higher the need. The more money the university has, the more money they can award to the families. This is typically from the endowment funds, not necessarily the government grants, and the school wins by attracting a broader demographic.

LOAN PROCESS
But what if need-based aid is not an option? Those who own property, have small businesses or substantial liquid assets can shave thousands of dollars off their college bill by placing their assets in the more advantageous vehicles. The 529s touted as the best way for everyone are not necessarily the top choice for college savings, and in some cases can cause a family to pay much more than they expected out of pocket. The good news is that the nation’s high school classes of 2009 are expected to send the largest number of students to college in U.S. history. The sour side is higher education costs have grown astronomically—more than 425 percent since 1982. This is an increase even higher than health care that coincides with a steep drop-off in traditionally available financial resources. It’s more important than ever for families to understand the education loan process and borrowing parameters. Navigating this path without an expert’s guidance is a mistake that could cost thousands of dollars. Remember, a person who’s earned a bachelor of arts degree earns, on average, 60 percent more than one with a high school diploma, translating to nearly a million dollars more over a lifetime.

Manuel Fabriquer is the founder of
College Planning ABC, a financial
consultancy that has helped families
of all income levels save thousands
of dollars in college expenses. Learn
more at www.collegeplanningabc.com