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Student loans and financial aid: How to save $23,000

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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

  1. 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.
  2. 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.
  3. 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.

The problem is that public colleges are broke. Broker than they’ve been in decades. They’re raising tuition and cutting back on their programs.

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.

And then there was Middlebury. With the second highest tuition in the country, at $42,910, ranked far above SUNY and roughly equal to U Penn (#4 in the category of Tier 1 Liberal Arts Colleges.)

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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  1. Hi, I’m getting ready to apply to grad school. Could you please do a Grad School edition of this post? It’s super helpful and you’ve done a great job assembling this info here. Wish I’d had this when I was applying for undergrad. Would love to know this stuff for grad school. Thank you!!

  2. Well, as a U of A grad (undergrad and law school), I take some offense here. Not *too* much, however, because you would be right in thinking there are plenty of partyboy/partygirl jokers majoring in sociology or something equally useless simply in order to get a good Arizona tan.

    But don’t forget that mega-schools like U of A and ASU accommodate a wide variety of students, and can attract some pretty damn good ones by having an enormous budget for certain programs (U of A’s space sciences and nursing programs, for instance).

    For those who will not get into the Big Name schools, or do not get the scholarships, a Big Size school is a very reasonable alternative. First, state schools are generally cheaper than private schools. Second, if you can get in-state tuition, you can get an even better deal. Third, large schools like U of A tend to have– *gasp*…dare I say it?– community colleges as feeder schools. If you’re not getting scholarships, there’s no point in spending thousands of dollars on your Intro to Calculus or Economics 100 course. For your gen ed requirements, knock them out at the community college at a fraction of the cost. Don’t imagine that over on Campus they’re unraveling the mysteries of the universe. For basic classes, it’s the same stuff. I promise you.

    In the case of Arizona, it’s hard to get residency. So what do you do if you’re not a resident? You take your first two years of courses at Pima Community College and earn your residency during that time. That means you set up local bank accounts, car registration, insurance, lease, voter registration and pretty much everything else *on the day you arrive.* Then, a year or two later, you transfer in as a state resident. Even without scholarship money, you’ve shrunk your tuition costs by an enormous amount.

    But what if you are a resident? You do the same thing anyway because community colleges also have in-state rates.

    Anyway, at least in the case of law school, your college does not matter. Harvard and ASU are equals on the resumes of law school applicants. What matters are grades and LSAT scores. Rock those and you can go anywhere. And law schools don’t even wait for you to apply for scholarships; many compete for the good students by throwing scholarship offers at them. I had an offer of a full scholarship from one school, but chose a partial scholarship at U of A instead. But there were a few 4.0/180 LSAT types that took up U of A’s offer to come for free, and we had a hell of a sharp student body.

    So, in summary, even if you DON’T get scholarships, it’s not the end of the world. You can still minimize costs if all you want is an education–and not who gives it to you.

  3. This is one of the most informative posts on your website. I graduated from UCLA with only $8k in loans by being able to secure various financial aid packages.

    I, too, have experienced friends and relatives not applying to their favorite schools out of the fear that they would have to pay whopping sums of money. The truth is, the more expensive private schools tend to help out a lot more than public schools.

    My single important advice for students is to follow what Ramit said and not apply to schools based on the cost of education. No matter how you look at it, a quality education will be the single best investment you will ever make. Follow your heart and merits to your dream school.

  4. My husband and I went to the same Top 30 liberal arts college. He was a top-tier student, and as a foreigner, got a free ride for a 5-year dual degree program.

    I was desirable, but less so. The school made it possible for me to attend, but only just. I have $18,000 in federal student loan debt, and my parents have debt as well, but we both believe the caliber of education and opportunities I got there make it worth every penny. They encouraged me to go to my alma mater as opposed to a lower tier school that gave me a free ride. And, given that tuition and board at my school are around $45,000/year at sticker price, I’m happy with how much we paid.

    I also worked my ass off to graduate with my BA in three years. In addition to saving me and my parents a lot of money, it also made me really stand out in the eyes of my professors and peers, which was to my benefit when it came time to ask for letters of recommendation.

  5. That’s well and good… What I want is a way out from the crazy student loan debt I married into. From what I’ve read, you can only refinance that debt once, and she’s already done that.

  6. The key point here is that if you are a top tier student then most universities want to find a way to get you. The grade point average is also only part of the story. I find that the high schoolers around here that do things in the way of community involvement seem to be the ones that have the easiest path to the top schools. Our class president got into the Air Force Academy, his grades were not stellar but our local congressman knew his name just from him being involved in different activities around the area.

    Even if you are not perfect on the ACT or SAT and valedictorian there are tons of scholarships out there, even for 3.4 slobs like me. I got most of my education funded from a scholarship from my high school. All I had to do was maintain a 3.0.

    Even after you start college you can pick up scholarships, or internships. I was amazed at what you can learn from your professors just talking for 5 minutes after class or during office hours. A lot of good companies will have a professor directly recommend a few students for internships instead of holding an on campus interview and trying to weed through 50 applicants.

  7. Great post on cutting down on student debt. Another factor to consider for student loans is lifestyle inflation. Dave Ramsey spoke to a college dean and he mentioned that the average student paid about $5k more a year on ‘upgrades’ for housing and meals.

    Budgeting and prioritizing is another part of your education.

  8. I was one of those students who didn’t apply to Ivy League schools because I didn’t want to throw away an application fee for a school I couldn’t afford. I wasn’t avoiding rejection (let’s just say there wasn’t any doubt about a school accepting me); I honestly thought it was impossible for a lower-middle class Midwesterner like me. I wish I knew you in high school.

    P.S. Got a free education at a state school and now I own my own business, which is starting to generate serious income after 6 months.

  9. Very nice post, Ramit!

    If you ended the post in the middle, it still would have been a post worth reading.

    Olabisi’s story strikes a chord with me in particular because when I was in high school I didn’t know any better and only applied to Binghamton!

  10. Ramit is back. The first half is what brought me (and I would assume a lot of readers) to this blog. The recent spat of entrepreneurship has not been doing it for me. Guest post was alright but it is really something I have known for a long time–it bothers me when qualified people don’t even look to the top and then end up spending as much (or more) as I paid post-financial-aid at a top school on some mid-level state school.

    I was equally appalled at some of my roommates who didn’t even bother to fill out and submit the fafsa. I wish they had seen some of those figures on aid to students with higher income families.