This is the time of year when your acceptance and award letters have arrived. For many parents, the sight of any money from a college is a cause for celebration. Before you place your deposit, there are a few things you need to know about how colleges use acceptance and award letters.
1. Colleges may negotiate your award. Colleges don't like to use the word "negotiate." The prefered term is "appeal." In many instances, colleges under-award the students they accept and will work with the family to modify their offer, especially if that family demonstrates need in the aid formula. Sometimes an award letter from a competing college can make all the difference. Did a college assess the equity in your home? If so, maybe they can re-vsit the calculation and get you more aid.
2. When a college sends out acceptance letters, only a fraction of the students actually enroll. This is known as "enrollment yield." Many elite colleges have enrollment yields of only 29-32%. Sure, many colleges can increase their acceptance rates to make up for the shortfall, but many colleges craft more attractive aid packages to help "fill" the many vacant seats that are left. When you understand a college's enrollment yield, this can give you tremendous insight into how flexible the award letter can be. Instead of taking the first offer that comes your way, maybe you can wait and see what all of the colleges are willing to offer you before you make a final decision.
3. Colleges may use loans to meet your need and call it an "award!" I had a family call me in excitment that a college had offered a total of $27,000 in aid over 4 years. When we examined the letter, we realized that it was a Stafford Loan from the federal government. Everybody gets those. Imagine their disappointment. Colleges that meet need at "100 percent" may opt to use a larger share of loans. What we are looking for is gift aid, or the kind of money that you do not have to pay back. Create an award analysis among different colleges and be sure to leave out any loans. This will give you a more accurate cost assessment.
4. If you use an outside scholarship, the college can elect to reduce the aid that was originally allotted for you. Many colleges "blend" outside scholarships into the final award. So if your family was originally alloted $15K a year in gift aid, the college can choose to substract the outside scholarship from the $15K. Instead of "stacking" more aid in your favor, all you are doing with an outside scholarship is working for the college and taking them off the hook. Be smart about this and ask the college how they treat these types of scholarships and ask yourself if chasing outside scholarships are an efficient use of your student's time.
5. Your 529 plan may have cost you a large portion of your financial aid. 529 plans are a popular tax-advantaged strategy to save for college. The one big problem: the college now knows that you have set aside money just for them. Many colleges have their own internal guidelines on how to treat these plans and can potentially result in a dollar-for-dollar reduction in aid. Like an outside scholarship, some colleges can opt to blend away 529 plan dollars out of your award letter.