Answers for Stressed-Out Parents, Part 4 May 20, 2009

Let’s continue with our series that answers the most common questions New Jersey parents have about college admissions and college tuition…

QUESTION: What about “early decision”?… There’s lots of debate over whether applying for early decision is a good idea or not.

If you’re looking to get the maximum amount of financial aid – whether it’s needbased aid or merit-based aid – then do NOT apply for early decision. Here’s why:

If your child applies for early decision, they are locked into going to that school. They have no negotiating power. No leverage. No wiggle room.

They might as well walk around campus wearing a sandwich board that says, “It doesn’t matter how little money you give me, I’m coming here regardless,” or perhaps don a t-shirt that reads, “Kick me, I’ll still love you.”

Here’s the deal: If a university knows you have to matriculate at their school if they accept you, they have no competition and can offer you as much (or more likely as little) off the college tuition bill as they want. It’s like the big bully pushing you around the playground, saying, “What are you going to do about it?”

Early decision is a giant financial gamble. Don’t take it.

(Note: Don’t confuse early decision with early action. Early action is different. With early action you can apply to as many schools as you want to. These acceptances are nonbinding. So you have plenty of wiggle room, because you don’t have to commit to any of them until May 1. Applying for early action is a winning strategy, because it can offer the best of both worlds. It lets a school know of your interest ahead of the crowd without limiting your options. Think of it as early decision without the handcuffs. Bonus: it also gives you first dibs on merit money.)

QUESTION: Why is it that when you look at 2 families who seem quite similar in terms of income and assets, they can be offered radically different financial aid packages? One family gets tens of thousands of dollars while the only thing the other family gets is loans.

Well, if we’re talking about two different colleges, keep in mind that some colleges meet 100% of financial need while other schools meet as little as 30%. So knowing the historical track record of the school can provide a clue.

If we’re talking about students attending the same college, then it could have to do with the number of children in college at the same time… the types of assets a family has (“liquid” assets such as stocks, bonds, mutual funds, CD’s, savings accounts, etc., count against you, while “illiquid” assets such as 401k plans or life insurance don’t count against you)… or even how much home equity one family has versus the other (over 300 colleges and universities factor home equity into the financial aid equation).

There’s also the variable of student assets. Student assets are counted even more than parent assets, so if one student has more money in their name than the other student (maybe in UTMA accounts or 529 plans), the first student is going to qualify for much less college aid.

Also, student income is very heavily penalized. If your high school senior earns more than $3,500 (see May 14 blog post) in the year before entering college, that income will hurt his/her financial aid eligibility.

The bottom line is, if you don’t know how to legally and ethically position you and your child’s assets properly, you could end up losing thousands in financial aid.