Financial Aid: Common Questions & Answers

Q: Does a stepparent have to provide information when a child applies for financial aid?

A: Yes. If a student receives support from a parent—divorced and then remarried—financial information from the stepparent is required on the FAFSA. While the stepparent might not have to pay for college, his or her income and assets will be considered to provide a more realistic picture of the family’s financial situation.

Q: Our family owns rental property. How will that be considered when we apply for aid?

A: It depends. If the rental property is a vacation home, the equity will be counted as a parent asset. If the rental property generates income the family needs to live on, colleges may be willing to treat the equity as a business asset, which will not affect the EFC as much.

Q: How reliable are scholarship search services?

A: Unfortunately, scholarship search services don’t have a good reputation because there are many fraudulent services trying to take advantage of innocent and trusting families. Because there is so much information available for free on the Web, it’s not necessary to pay money to subscribe to a scholarship search service.

It seems that some search organizations are making promises they can’t keep. Beware if you are promised a guarantee of a scholarship or a certain amount of aid. Be suspicious if your child is notified that he is a finalist in a contest he never entered. Don’t give your credit card number out, especially over the phone, to a scholarship solicitor promising a huge grant in return. If you suspect a scam, contact your state Attorney General’s Office or the Federal Trade Commission at www.ftc.gov, or call it toll-free at (877) 382-4357.

Your public library, the guidance office, and college financial aid offices offer up-to-date and comprehensive information for you to use to find appropriate scholarships. If you are considering hiring any kind of scholarship search agency, first ask your guidance office or a college financial aid office for an opinion.

Q: My wife and I are responsible for paying health and home insurance for her mother. We cannot, however, claim her mother as a dependent since she receives social security, files her own taxes, and claims herself as a dependent. Will financial aid officers take this into consideration?

A: You should point out these circumstances, and financial aid officers may make an allowance for what you pay or include your wife’s mother as a member of your household to increase aid eligibility. Be prepared to document the expenses you pay for relatives not claimed as dependents.

Q: My two youngest children attend private school. Will college financial aid officers consider these tuition obligations when computing aid for our older son?

A: Yes. Generally, college aid officers use a cap (subject to yearly adjustment) for the amount of private school tuition allowed against income.

Q: My husband and I are thinking of refinancing our home. Will taking on more debt at this time mean that we qualify for more financial aid? If so, is there any down side to refinancing?

A: Colleges often count equity in a home among your assets. If debt is increased, equity decreases. However, the value of your home equity translates to the bottom line at a very low rate. If you can refinance at a low interest rate and reduce monthly payments to free up cash to pay college expenses, then there is certainly no disadvantage to you.

Q: When it comes to calculating financial aid, we’ve heard the terms institutional methodology and federal methodology. What are the differences?

A: Federal Methodology (FM) is the formula set into law for calculating eligibility for federal aid programs, including Federal Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), Federal Direct Stafford/Ford Loans, Federal Perkins Loans, and Federal Work-Study Program (FWS). Institutional Methodology (IM) is the formula used by the colleges that provide significant institutional dollars to students in the form of need-based grant aid. (In other words, these colleges use their own money, in addition to the government’s.) The intention is to more fairly allocate those dollars among the student applicants.

Differences between FM and IM exist both in terms of what data is collected and how that data is used in each needs analysis calculation. For example, FM does not include home equity, IM does. FM calculates EFC by dividing equally among all children in college in one family; IM divides EFC among children, often based on the relative cost of each college. IM considers retirement accounts and private elementary and secondary tuition for siblings, FM does not. The financial aid offices will be able to detail more specific differences for you.

Q: I am 63; my wife is 59. Because we are so close to retirement age, will we be eligible to receive more financial aid than younger parents? Are there any other special financial considerations or recommendations for older parents?

A: College financial aid officers may choose to reduce or eliminate home equity from needs analysis for parents close to retirement. You must point out on your application that you are close to retirement in hopes that such an allowance will be made. Older parents often think that if they retire, they may be eligible for considerably more financial aid. That really depends. Some pensions are not significantly lower than earnings were, and certain allowances made for expenses incurred by people who work will not be used in the needs analysis equation for retirees.