Even several decades before the priciest college tuition bills approached $60,000 a year, newspaper columnist Bill Vaughn mused, "Economists report that a college education adds many thousands of dollars to a man's lifetime income - which he then spends sending his son to college." Any parent who's ever paid a tuition bill may simultaneously laugh and wince at the thought.

But for decades, the cost of private and public universities has increased at nearly twice the rate of inflation. Although billions of dollars in financial aid and scholarships are available, applying and qualifying remains a daunting task.

Myths about financial aid persist and intensify the stress surrounding the application process. Many believe that saving too much will decrease their chance of receiving aid, while others believe that not saving at all will ensure all of their financial needs will be met. With higher-net-worth clients in particular, the conventional thinking is that aid won't be available at all.

Nonetheless, the facts are more encouraging. Factors such as the number of children in college at the same time and pledges by specific institutions to provide attractive aid packages to lure students can result in higher-earning families qualifying for aid. Positioning yourself to guide clients through the application process begins with understanding how the system works.


Assistance falls into two categories: need-based aid and merit-based aid. Federal financial aid, determined by a formula known as the federal methodology, is entirely need-based; universities can provide aid from their own resources, based on need as well as merit.

Applying for federal aid begins with completing a required form, the Free Application for Federal Student Aid. It must be submitted to each school to which the student applies and is seeking financial aid. The earliest it can be submitted is Jan. 1 of the year the student will attend college.

Most colleges use the FAFSA form as their only application for need-based aid, but about 300 colleges (many highly selective private schools) use a formula called the institutional methodology, which also requires the CSS/Financial Aid Profile application. In general, the CSS Profile asks for more detailed information related to a family's income, assets and resources not required on the FAFSA, including home-equity and retirement accounts.

With information from the FAFSA, schools determine need based on the expected family contribution and calculate it using a straightforward formula: Cost of Attendance - Expected Family Contribution = Financial Need. The expected family contribution is the minimum amount a family is expected to contribute for a particular year. Of course, not all schools meet 100% of a family's need as determined by the formula.

The expected family contribution is based partly on whether the amount is attributed to the parents or the student. Families often try to shift income and assets to appear less wealthy, lowering their expected contribution and boosting their aid package. Such practices may include withdrawing money from bank or brokerage accounts, which must be listed on the FAFSA, and moving it to an annuity, which doesn't have to be disclosed.

But the financial aid formula places a much higher emphasis on earnings than on assets so as not to penalize those who saved for college over the years. For example, just 5.64% of parental assets that must be listed on the FAFSA are deemed available to pay for college (after an asset protection allowance of $45,000 to $50,000, depending on the ages of parents).


Rapidly rising costs have pushed sticker prices for many selective private schools well beyond $50,000 a year. Using current expected family contribution formulas, this means more families with household income of more than $100,000 now qualify for need-based aid. In addition, some elite private schools have implemented more generous financial aid awards, resulting in middle- to high-income families receiving aid.

The recent economic crisis did force some schools to dial down packages, although awards are often generous. For example, Harvard enhanced its financial aid awards several years ago. According to the school's website, parents with annual incomes between $120,000 and $180,000 are asked to contribute about 10% of the total. With current cost of attending nearly $53,000 this fall, a family earning $180,000 will pay about $18,000, putting the school's aid award at $35,000. Not bad when you consider the award is considered "gift aid" - the kind you don't have to repay.

Princeton also has enhanced its awards. A chart on its website reveals that, for the class of 2014, the average grant to a family with income between $120,000 and $140,000 was $34,700. To families with incomes between $160,000 and $180,000, the school awarded an average of $26,450. With a projected price tag of $52,670 for the 2011-12 academic year, these grants certainly help. Princeton also is committed to eliminating student loans from its assistance packages, which are now comprised of 96% gift aid (grants and scholarships) and 4% through a job on campus.

Yale has also pledged to meet 100% of a student's financial need with aid packages that include grants and scholarships. Students are expected to contribute through a campus job, and loans are available only upon a student's request. Notable with Yale is that its program covers a higher range of income than Harvard. Families earning between $130,000 and $200,000 are asked to contribute 12% to 15% of income.


The financial aid process is highly individualized, and awards vary from family to family depending on the methodology used. That means it's vital for families to be aware of which formula - federal or institutional - is used by the schools they are considering.

Typically, private schools use a CSS Profile and institutional methodology. Yet Princeton doesn't require a CSS Profile, and Harvard and Princeton don't consider home equity as part of a family's assets. Home equity isn't required on the FAFSA form or for the federal formula, but it is disclosed on the CSS Profile and used in the institutional formula.

If a family has $300,000 in home equity and the school uses the institutional methodology, that equity is counted as a parental asset, assessed at 5.64%. As a result, it could mean a difference of $17,000 in an expected family contribution, depending on the school.

Chuck Hughes, former senior admissions officer at Harvard and founder of Road to College, an admissions consulting firm, stresses that families should focus on the percentage of need that a school meets and how much of it is gift aid. He points out that, at about $160,000 of household income, a family's expected contribution could be more than $40,000. "These families want to make sure they are comparing the percentage of gift aid versus self-help aid in their award packages," he says.

For example, consider Tufts and Amherst, both selective private colleges with annual costs of about $53,000. Both pledge to meet 100% of a student's demonstrated financial need. Tufts provides 85% in the form of gift aid and 15% in self-help assistance or loans. But Amherst's aid packages consist entirely of gift aid, with no loans.


Public universities have seen an increase in applicants as families look for cheaper tuition, especially at in-state schools. But, according to Troy Onink, CEO of Strategee, which sells college planning software and services, it may not be wise to limit choices to public schools. Public schools appear cheaper because of the "perception of affordability," he says.

Onink, who has spent several years as a financial advisor, notes that stints of five or six years at public schools aren't uncommon, driving up the cost. "Budget cuts and skyrocketing enrollments make it harder for public schools to hire enough faculty to allow students to take the necessary classes to graduate in four years," he says. In addition, he adds, "Public universities, while seemingly more affordable now, may be forced to raise tuition soon due to plummeting state revenues." Also, private schools have more discretion with pricing and can discount tuition to attract students.

Onink advises families to check out public and private colleges and compare different financial aid formulas. Strategee's Smart Search software does that, enabling a family to list several schools side-by-side and see items such as likelihood of admission, aid formula used by the school, estimated cost, expected family contribution and percentage of need met, with the resulting net cost shown for each school. This can help families understand how they may be able to afford a more expensive school.


Remind your clients that the aid process is more sensitive to household income, and that more aid may mean more loans. Encourage clients to use the expected family contribution calculators available on many college websites to get an idea of the amount of aid they're eligible for; then focus on the percentage of need met and on the statistics regarding the percentage of gift aid at various schools. Encourage students to be a part of the process. It's a good way to ensure they get a heavy dose of math and quantitative analysis before heading off to college.

David Julianois an advanced planning consultant at Commonwealth Financial Network, a registered investment advisory firm in Waltham, Mass.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access