How to Play the College 'Financial Aid' Game

Attention parents of college-bound seniors! Forget about putting away the holiday decorations. It’s more important that you mail those financial aid applications a.s.a.p. — even if you think your income is too high for your student to qualify for assistance.


First of all, colleges have a limited amount of financial aid and it’s doled out on a first-come, first-served basis, according to Deborah Fox, founder of Fox College Funding, a network of advisors who specialize in helping families — especially middle-class and upper-income families — reduce the cost of college.

Fox says the reason you want to submit the Free Application for Federal Student Aid (FAFSA) even if you think you won’t receive any is that the act of applying for aid gives you “access to low-interest student loans.” This includes both the Stafford loan, which is issued in the name of the student, and the PLUS loan, which parents take out.

The maximum interest rate on these is currently 6.8 percent and 8.5 percent, respectively. However, Fox says there is such competition from lenders that many are willing to sharply discount their rates, shaving off as much as two-and-a-half percentage points.

She suggests parents think twice before paying for junior’s college education with current income or by liquidating assets.

“If their portfolio has been performing well and they expect it to continue, why not let their investments ride during the college years and pay off the loan after graduation?” Especially if you can snag an interest rate between 4.5 and 6 percent and expect your investments to earn more than this.

Speaking of competition from lenders, don’t think for a moment that the companies endorsed by a college are a good deal … for anyone but the school itself. The Federal Family Education Loan Program consists of about 4,000 private companies. But to get on a school’s “preferred lender” list, lenders often kickback part of their profits to the college, says Fox. This is either in the form of cold, hard cash or “soft” dollars, such as providing software to help the school manage its financial aid program.

So shop around. “At least 50 percent of the time we find that lenders outside the ‘preferred’ list will offer better rates and terms.”

Believe it or not, according to Fox, another reason you want to submit a financial aid application even if you think you have too much in the form of income or assets is that it can help your child get accepted at the college of his/her choice. She says schools have two primary objectives when selecting students: 1) attract the best students from an academic standpoint, and 2) bring in as much revenue as possible.

In other words, they have to strike a balance between providing aid to really smart students who will make the college look good academically and attracting families that can afford to pay the full cost.

If you’re not going to qualify for financial aid, then flaunt it! A FAFSA that shows you can clearly pay your own way helps out with objective No. 2. “Don’t be shy about disclosing your income and assets,” advises Fox. “Don’t minimize the situation, do the opposite. Show the school you can and will pay for the cost of attendance,” says Fox.

Hopefully, you now realize that the financial aid application is about much more than qualifying for a handout. It’s definitely worth the time to fill out and submit. Just be sure you do this correctly.

According to Fox, a common mistake folks make on the FAFSA is they over-value both the parents’ and the student’s assets. For instance, when asked to place a value on their investments they’ll use the most recent closing price. But that’s a mistake. Instead, you should deduct transaction costs such as brokerage commissions to come up with a “net” value.

This is especially important when listing the value of your home. The standard used by financial aid officers, says Fox, is the “30-day quick sale value,” i.e. what you’d get if you had to sell your home immediately. This is probably substantially below the price a realtor estimates you could get if you were not in a rush. And again, you should reduce this value further by deducting real estate commissions and other costs you’d incur if you actually sold the property.

Parents also over-state their income by including contributions to retirement plans. There’s a separate line on the FAFSA form for this. If you include, say, your 401(k) contributions on the ”income” line and again on the “retirement plan contributions” line, it gets counted twice. The result, says Fox, is that “the expected family contribution will be higher than it should be.”

It can make you feel as if you need to go to college just to learn how to fill out the darn applications!

Hope this helps,

If you have a question for Gail Buckner and the Your $ Matters column, send them to:, along with your name and phone number.