College gets more affordable, but not for long

http://www.savingforcollege.com/articles/20101119-college-gets-more-affordable-but-not-for-long

As college tuition increases, students are getting some reprieve. According to a recent study by The College Board, families faced an average 7.9 percent jump in in-state tuition and fees for the 2010-2011 school year, or a 4.5 percent hike for those at private institutions. But they also received record high federal grant aid.

The higher federal grants -- a result of state stimulus funds and an increase to the federal Pell Grant Program -- increased the average grant package for an undergraduate by $1,100.

"That's a big change," says Kevin Walker, co-founder and CEO of the online student loan comparison site, SimpleTuition.com. "It's good to see that steps were taken to provide financial aid for the neediest students. It's good in the short term, but these changes will not solve the underlying problem that we're right at the cusp where college is getting more expensive than our bank accounts can absorb."

Financial aid jump may be short-lived

The increase in federal grant aid may not last long. According to the Department of Education, the maximum Pell Grant is currently set at $5,550. This would cover about 73 percent of a year's worth of tuition and fees at an in-state public school or roughly 20 percent of one year at a private institution. While the grant was scheduled to increase with the Consumer Price Index, the National Association of Student Financial Aid Administrators, or NASFAA, reports that it could drop by $845 for the 2011-2012 school year.

According to the association, the Pell Grant program is currently facing a $5.7 billion shortfall, largely the result of drops in discretionary funding. If Congress doesn't pass measures to plug the gap, the Pell Grant will drop to $4,705 for the 2010-2011 school year -- as college tuition is expected to increase.

"Next year, things are very likely going to get much worse," says Mark Kantrowitz, publisher of the financial aid website FinAid.org. "The Pell Grant isn't increasing, stimulus money is going away and the state income tax revenues haven't recovered. So states will probably cut support for higher education, which means tuition inflation for students. In the next decade, college is going to become less affordable, especially to low- and moderate-income students, since the grants are not keeping pace with college costs."

For now, there's not much that students can do about national budgetary decisions.

Justin Draeger, president of NASFAA, urges students to contact their congressional representatives and push them to fund the Pell Grant program. He also says students should take steps to maximize their own federal financial aid eligibility. Here are a few tips.

Use accurate income information

"The Free Application for Federal Student Aid bases a financial aid package on a tax information from the previous year," says Draeger. "In this economy, the unemployment rate still hovers around double digits, so if that information isn't reflected on that form, they should go to their financial aid office and ask for a FAFSA adjustment."

Since college financial aid offices have the power to adjust a financial aid package based on circumstances such as a layoff, divorce or unexpected medical expenses that aren't considered on the FAFSA form, students who find themselves in a unique financial predicament should file a financial aid appeal as soon as possible.

Simplify your needs

When it comes to collecting financial aid, your savings will count against you. While money stored in a retirement plan or home equity doesn't count on the FAFSA form, the Department of Education reports that every dollar over a certain limit stored in savings accounts, bonds, CDs or other savings vehicles will subtract 5.6 cents from your financial aid package if held in the parents' name. And every savings dollar in the student's name will subtract 20 cents.

Families can minimize that financial aid reduction by stashing funds in the parents' name or in a 529 plan with the student as the beneficiary, maxing out their retirement funds and throwing a little more towards their mortgage. But they'll probably still lose some aid.

"Parents who gross under $50,000 a year (combined) and were eligible to file a 1040A or 1040EZ can also take a simplified means test which doesn't take assets into consideration," explains Kantrowitz. "If their gross income is under $30,000, then their expected family contribution for college will automatically be zero. They will automatically qualify for the full Pell Grant."

Investigate early

The rise in federal grant aid is due to both the Pell Grant increase and increases in state financial aid from the stimulus package. Students may be able to get their hands on a remaining chunk of that cash by asking their financial aid office about awards available midyear and those awarded for spring semester. If students can start applying for financial aid awards for the 2010-2011 school year, Draeger says it pays off to start early.

"Two or three years before they get to college is the ideal time to start looking for scholarships, but it's really never too soon," he says.

Posted November 19, 2010