Student loans and financial aid: How to save $23,000
April 01st, 2010 - 85 Comments
When it comes to student loans, financial aid, and higher education, everyone’s got an opinion. They just usually happen to be wrong.
When I was in high school, it drove me crazy to hear people saying things like, “Oh, I’m not going to apply to Harvard. Even if I could get in, there’s no way I could afford the tuition.”
This is wrong. In fact, if Harvard accepted them, these very people would likely have to pay nothing. But people don’t understand that. Like naive car buyers, they truly believe that “tuition” is what people actually pay, and are predictably too intimidated to even apply.
My friends who didn’t apply to these colleges are perfect examples of people who do the job of rejecting themselves before anyone else can reject them. It’s sad, because many of the people who think this way simply don’t know any better.
In reality, almost nobody pays the full sticker price.
Hundreds of thousands of dollars in scholarship money
Here’s my 10-second background so you know where I’m coming from: I grew up in a middle-class family with immigrant parents and 3 other siblings, got into Stanford (where I completed my undergraduate and graduate studies), and secured hundreds of thousands of dollars in scholarships.
But even if I hadn’t won a single scholarship, my financial aid would have required me to only pay single-digit thousands per year for a Stanford education.
That’s why it’s aggravating to read people, especially anonymous online commenters, who persist in advising students to apply to community colleges and state universities for financial reasons. That’s nonsense. If you want to go to your local university to stay close to your family, or you prefer a smaller school, fine. But don’t blame it on money. It’s just not true.
3 notes about applying to expensive schools
- If you’re good enough to get in, top-tier universities will take care of you. Yes, “if you’re good enough” includes incredibly complex socio-economic connotations, but we can’t address them all here. I simply want to highlight the mistaken belief that money is holding students back from attending top-tier colleges because of tuition costs. No. It’s not. If you’re good enough to get in, top-tier universities will take care of you, financially.
- Your college is not a technical school. It’s not only about how much money you’ll make once you graduate, like so many people try to claim. There are ineffable qualities to being surrounded by an extremely high caliber of peers. I’m not even saying, “Go to a top-tier university” (although I think you should). Just apply to them.
- Tuition should be one of the last decisions you make. Stop thinking about the money up front. First, focus on getting into the best schools possible, whatever that means for you. Once you secure admission, worry about the finances. Remember, if you’re good enough, the universities want you there, and they have hefty treasure chests to ensure that you matriculate.
Harvard dean: “….Never allow a lack of financial resources to stand in the way of reaching for their first choice college…”
The curious aversion to student debt is at once irrational and understandable. To put it bluntly, I wouldn’t take on $40k of debt to attend Chico State. Actually, I wouldn’t pay $10 to go to Chico, and I would rather send my daughter to a Chinese prison than the 4-year gangbang that is ASU or UofA. But I would easily pay $40k to attend a top-tier school like Stanford, Harvard, or Yale because of the education, caliber of peers, and opportunities available at schools like this.
Yet the constant drumbeat of “avoid student debt” produces some funny thinking.
Washington Post columnist Jay Mathews asked the provocative question, Do You Know a High-Achieving Student Kept From College Because of Money?. Not one person could provide an example.
As William R. Fitzsimmons, the Harvard dean of admissions and financial aid, writes, “Promising students should never allow a lack of financial resources to stand in the way of reaching for their first choice college.”
Always, always apply to the best schools you could possibly get into.
Does a more expensive college mean it’s better?
It’s important to address whether “expensive university = better.”
My take: Not always, and “better” is different for everyone. But can we stop being politically correct for a minute? Yes, expensive universities are often better than less expensive schools. At Stanford, I met people I could have never otherwise met. I had access to resources that few other colleges could equal, and experiences that few other colleges could provide. I learned an entirely different way of thinking.
The point is this: People assume that more expensive colleges are out of their reach, when in reality, if you can’t afford much money, you’re the very person who should be applying to expensive colleges.
That’s why I’m thrilled to run this guest post from Anya Kamenetz, who has simple advice: “Apply to the most expensive schools you can.”
To find out why, read on.
Anya Kamenetz: How to save $23,000 in student loans
The average bachelor’s degree recipient graduates with $23,200 in student loan debt. But that is mostly preventable. Here’s one way to avoid it:
Apply to the most expensive schools you can.
Colleges are like airlines. The person in the seat next to you may be paying a fraction of what you are for the same ride. Too many people focus on the published sticker price, which makes public colleges seem more affordable.
If you have good grades and test scores, and you have a special quality a college is looking for, you could end up with lower debt at a more expensive school.
Total grant aid to both undergraduate and graduate students increased from $43.4
billion) in 1998-99 to $61.0 billion in 2003-04 and $76.4 billion in 2008-09, in constant dollars. As you can see, institutional grants—money that comes from the college itself—is the largest source of grant money for college. Almost half of the new grant dollars over the past five years were from colleges and universities themselves.
(image via the College Board)
A private college with a big endowment is likely to offer a more generous package of grants and discounts than a public university—in fact, the most expensive private colleges cover about 40% of the cost to attend for students whose families make $60,000 or less.
You don’t have to be poor to get financial aid, though. Quite the opposite. A 2006 study of major research universities found that they spent $171 million on aid to the poorest students—those whose families made less than $20,000 a year. At the same time, they spent $257 million on financial aid for the richest students, from families earning more than $100,000 a year. To look at it another way, between 1995 and 2003, grant aid from those same universities to students from families making $80,000 or more increased 533 percent, while grant aid to families making less than $40,000 increased only 120 percent.
(Image via the Education Trust)
I met Olabisi when I spoke at her high school in the Bronx. She was a very high-achieving student who had immigrated from Nigeria. At the time she was comparing financial aid offers from SUNY Binghamton and the University of Pennsylvania. She showed me the financial aid letters. SUNY’s offer was for her to take out $4000 of loans a year, at a public university ranked 80th among major universities college that costs $14,898 this year. That’s $16,000 in loans, total. The offer at U Penn, an Ivy League school ranked 4th in its category in the US News and World Report rankings, was for her to take out $20,000 of loans a year, for a college that costs $35,916. That’s $80,000 in loans total.
Here’s what she wrote me a few weeks after we met:
“I got great news…I’m going to Middlebury this fall. Middlebury offered me $41,810 in aid with $36,060 in college grant, $4,000 in Perkins loan and $1,750 in work study. I am so excited that I will be attending a college with less worries about the amount of debt I will be in after four years. My family contribution is more than $2,000 and it will be $200 on a monthly payment.
This is great! Middlebury said that I cannot take any more loans from them and every student is only allowed $4,000 in loans. I’m very happy too because today, I graduated a valedictorian!”
More than 30 of the most expensive private colleges, including Amherst and Claremont McKenna, have adopted no-loan policies over the last few years. That means if you get accepted and you meet their income requirements, they pledge to meet your needs with grants and work-study instead of student loans. Some colleges have had to pull back on the no-loan guarantee because they are taking severe hits to their endowments, but a richer college is still more likely to be able to work with you to limit your overall loan burden, just as Middlebury helped out Olabisi.
Here are some strategies for maximizing your financial aid package:
1) Fill out your FAFSA form as early as possible. You may be able to get help on this from a tax preparer such as H&R Block on an hourly basis.
2) Don’t apply early decision—it includes a commitment to attend if you are accepted, which means you can’t negotiate.
3) Apply to a larger number of schools: 10 to 15 rather than 5 to 7.
Once you get some financial aid offers, here’s an awesome website that can help you decode your financial aid letter. They break down real financial aid letters and explain them in plain English.
Now you’re ready to get a better deal.
Colleges don’t take kindly to attempts to hardline “negotiate” on a financial aid package. Instead, call the financial aid office and ask to speak to a financial aid officer, or even better, ask for an in-person meeting. Here’s what you should say to the financial aid officer:
“I want to let you know about some personal circumstances that have changed for me or may not be reflected on my application:
- My relocation costs to move xx miles to this college.
- Recent unemployment, or illness.
- Other personal hardships for you or your family.
- Because of the CARD act, I will not be able to use a credit card for personal expenses.
- Because of lenders dropping out of the student loan program, I haven’t been able to find private student loans.
- A common problem: although a stepparent’s income is listed on my application, they are not contributing to my education.
- I believe that I would be a valuable addition to this school’s community for the following reasons: (Same stuff you said in your personal statement).
- This school is my first choice, but I am entertaining other very attractive offers, and I need to make a decision.
- Is there any way that you could take another look at my application for financial aid?”
Good luck. The best financial aid packages go to those who are persistent.
Read Anya Kamenetz’s new book, DIY U, for more strategies on crafting a personal learning path that is affordable and relevant to your future.
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