If you're the parent of a student headed off to college in the fall (hopefully not virtually), you are about to make some big money decisions about how to pay for college — and whether the cost is worth the ultimate price.
The good news is that because of COVID-19, the balance of power has shifted dramatically this year. Colleges suddenly need to fill their student rosters. And now, parents have some financial leverage — if they use it correctly!
The secrets of how to do just that are revealed in Ron Lieber's new bestseller, "The Price You Pay for College." Lieber, a highly acclaimed New York Times financial columnist, spent years writing this insider look at paying for college. It covers everything from the emotional decisions families confront to the realities of negotiating a better deal.
His timing is perfect. This is the month that students receive exciting acceptance letters — and then another letter detailing financial aid the school will offer. It can be a rude awakening. Some aid comes in the form of student loans, which must be repaid. There may also be offers of scholarships and grants (free money) or work/study programs.
Just understanding the offers may present a challenge, as terms are rarely standardized. Rick Castellano of Sallie Mae, the largest private student-loan lender, suggests using tools like the aid offer comparison spreadsheet at www.payingforcollege.com.
Filling the gap
Inevitably there is a gap between the financial-aid offer and the cost of college — a shockingly expensive gap. Parents often turn to expensive private loans or even more expensive parent PLUS loans. Little do they realize that there's another way to fill that gap: a little known concept called merit aid, which schools use to lower the cost of attendance for selected students.
As Lieber explains, merit aid is free money that colleges and universities have always tucked away to attract students they want to include in their student body. Good grades and good test scores may be a requirement of this offer, and financial need may not be a consideration. Merit aid should be considered a "discount" that admissions officers use to attract and build their student body, a sort of "marketing tool," suggests Lieber.
And these days, as families question the value of taking on debt for remote learning — or have their own financial difficulties because of the economy — schools are offering more "merit aid" just to fill their classes and cover their fixed costs.
Getting more merit aid means that a very expensive college may cost you less out of pocket than your state school, which has less money to offer incoming students. So don't jump at the first offer, and don't eliminate your favorite school because of the cost gap. It's time to start negotiating!
Think of it this way: No one walks into a car dealership and pays sticker price. You know you're going to get a deal on the price — and many websites offer data on what that discount should be. Not so with college deals, which are rarely made public. And this is a far bigger commitment than getting a few thousand dollars off your next car.
Lieber suggests being humble in your approach to reconsideration of the financial offer, suggesting that you might not have initially presented your case appropriately. If your financial need has changed, contact the financial aid department for a review. But when asking for more merit aid, contact admissions.
Lieber suggests using a free service at https://formswift.com/swift-student to help write requests for additional financial aid. It's designed to help less sophisticated families lower the cost of college attendance by successfully asking for more merit aid.
Castellano suggests showing your favorite school a better offer (i.e., lower total cost) that you received from another, competitive school. Done right, maybe your favorite school will match it.
Both these experts agree that it can't hurt to ask for more help filling the gap. The worst the school can say is no. And if more families resist being guilted into going into debt for a more expensive, if prestigious, school, the pressure will be on the colleges and universities to make their offers more attractive. That's the Savage Truth.
Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.
Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Email her at email@example.com.