Thursday, 4:30 PM
Paying for College 101
(Handout photo)
Sally Donahue, Harvard's director of financial aid, answered questions about how to pay for college.
By Linda K. Wertheimer, Globe Staff
A Globe story Thursday about how some elite colleges are bolstering financial aid to students from higher-income families generated a number of e-mails. Some reacted with disbelief that some families who earn as much as $180,000 a year receive financial aid, yet also wanted to know if they could benefit from the colleges' new push.
"My husband is a teacher, I am a nurse. We have helped get two daughters through college, and they both have college loans," wrote Terri Ford of North Falmouth, whose third daughter is now considering a costly private school. "I only hope and pray that your facts are correct with the money these colleges offer now."
Sally Donahue, Harvard's director of financial aid, agreed to answer questions about how to pay for college.
Q: To many parents, it seems unbelievable that families can qualify for aid with $180,000 or higher incomes, yet Harvard and other elite schools say they are providing help in that income range. What are the caveats?
Many schools use the College Board's need analysis to determine a family's need for financial aid. Both income and assets are taken into consideration, along with family size and number of children in school. So while a family's financial aid eligibility may vary from one college to the next based on their institutional guidelines, it is not unusual for those with incomes of over $180,000 to qualify for some assistance. At Harvard, we are fortunate to have the financial aid to meet the full demonstrated need of all families.
Q: What’s the best scenario for families to qualify for more financial aid -- pay off a home mortgage before your child is nearing college age or leave it alone?
Many schools with limited institutional funds for financial aid depend on available federal funds. The federal formula does not include home equity as an asset, and the form you fill out to qualify does not even ask for information about family homes. It would make little sense to pay off a home mortgage to move family savings out of the analysis of your financial need. If you use your savings to pay off a home mortgage, then you no longer have that money available for emergency expenses, which then may need to be covered with another loan.Schools that use their own funds for aid usually ask a family to file a College Board form, which does want information about home ownership. Schools use this information differently. Some include existing home equity (current market value of home less remaining mortgage debt) to analyze your available assets, while others cap home equity at a percentage, often 1.2 percent or 2 percent of income to address the issue of home value inflation.
At Harvard, we often exclude or dramatically reduce a family's home equity, particularly if the resulting expected parent contribution would be unreasonable. There are so many significant nondiscretionary expenses facing families with seemingly healthy incomes today. We expect families to consider paying for their children's college educations a priority, but we do not expect them to sell their homes or turn their backs on extended family members so they can pay the college bills.
Q: Is it better to scrimp to save money for college, or are colleges likely to provide more aid for families who have not saved?
Saving for college is a good thing to do. The alternative is to rely on loans. Rarely can a family come up with the entire family contribution a college expects out of current income. Like most important investments, we assume that a family will finance education expenses over time. A family who has saved carefully for education will possibly not need to borrow.
Q: A parent writes in that he makes $95,000 a year, and his daughter qualified for no aid. Can he appeal that decision? What evidence might he use to show need?
This would depend on the school, the cost of attendance, and whether or not the college had grant funds available. Most schools will consider appeals, even for determining eligibility for subsidized federal loans, as long as you can document nondiscretionary expenses that make it difficult for you to cover the costs. Appeals should be submitted in writing, with carefully itemized expenses, according to the college’s guidelines.
Q: How do colleges treat retirement savings as they calculate financial aid?
Colleges do not count retirement savings when they evaluate a family’s ability to pay for education. But the College Board form, which many schools use, does ask for information about retirement to help schools better understand better a family's financial circumstances. A family with no retirement savings is unquestionably in a more difficult situation than one with ample savings.
Q: Where could parents and students learn more about the ins and outs of financial aid, not just at Harvard, but also at other colleges?
A good place to start is at the College Board website at: http://www.collegeboard.com/student/pay/index.html. Beyond that, most
schools include helpful information about their financial aid programs
on their websites, and are happy to speak with prospective students and
families about financing education. Questions about Harvard's financial
aid program can often be answered by visiting our website at:
http://www.fao.fas.harvard.edu.
