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  • Financial Aid – Premier Schools

    Stanford’s announcement came two months after Harvard publicized its expensive new financial aid policies and over a month after Yale and Dartmouth followed suit with their own. Since Harvard’s announcement in December (at which time it saw its application rate spike by 19 percent), other top ranked schools including Williams, Princeton, Swarthmore, Cornell, Northwestern, University of Pennsylvania, Bowdoin, Pomona, Cal Tech, Duke and Davidson have announced new financial aid policies in what some people consider an effort to “keep up with the Harvard’s.”

    Similar to Harvard and many other elite universities, on February 20, Stanford University announced a new financial aid policy dramatically increasing the eligible amount of aid for middle-income families. The announcement comes as the latest in a series of policy revisions over the past three years designed to ease the burden of paying a tuition averaging $47,000 a year and to ensure that no high school student considering applying to Stanford decides not to because of cost.

    In addition, the plan also calls for eliminating student loans. All students qualifying for need-based financial aid no longer need to take out the expected $4,000 loan before receiving money from the scholarship fund. Beginning in the 2008-09 school year, students are only expected to earn $2,500 from working during the school year and earn approximately $2,000 over the summer.

    Each fall, the financial aid program is reevaluated by the Financial Aid Office, the Dean of Admission and Financial Aid, the Budget Office, the Provost, and the President, with consultation from the Board of Trustees. Cooper added, “There are no specific plans in the works for more changes at this time. We will be evaluating the success of our current changes next fall.”

    The changes were made possible through an increase in the endowment payout and doubling the financial goal of the Stanford Challenge, an effort to increase fundraising for the university, to $200 million. The Board of Trustees approved the increase in endowment payout from 5% to 5.5%, or by $160 million, on June 14, 2007, at the time intending to fund capital improvement projects.

    The announcement follows the House of Representative’s passing of the College Opportunity and Affordability Act, which aims to expose the allegedly corrupt relationship between expensive colleges and loan agencies and give greater transparency to the consumer. The Senate has put forth its own version of the bill. If passed, the law would require colleges to report financial information that Stanford University officials claim to be unproductive and difficult, namely revealing the rate of their endowment spending.

    Many people believe Stanford’s increase in endowment spending on financial aid from five to 5.5 percent this year is aimed to counteract the repealed provision of the College Opportunity and Affordability Act that would have required colleges to spend at least five percent of their endowment on financial aid. But the Board of Trustees approved the increase in endowment payout in June, nearly five months before the act’s proposal. As far back as 2003, Republicans had been discussing a bill that would penalize colleges that raised tuition significantly faster than inflation.

    These policy revisions have also coincided with and followed those of other top ranked schools. In 2006, Stanford eliminated educational costs for families earning less than $45,000. Harvard had enacted a similar policy in 2004 and Yale in 2005.

  • College Bills in this Economy

    With the economic downturn, how will you pay for the college bill?

    It could be either merit aid from the school or a simple federal financial aid. If you think your income is too high, you may not qualify the school’s aid. Of course you may fill out the federal application for financial aid, known as FAFSA. You may check the colleges’ websites to see whether there are additional requirements for merit aid; some scholarships require a separate application that may have an early deadline.

    You can use the 529 college savings plan to pay for the bill of a high school junior or senior has dropped 12.5% in value over the past year. Is your 529 in cash or stocks? If it is in stocks, with the stock market like today, it will not do much. If it is in cash, it depends on when you sold the stock and convert it to cash. If you sold at the low with panic selling, since most of the money in your 529 in cash or other fixed-income investments by now, a big surge in stocks won’t help you much.

    Could using 529 funds early hurt your chances of getting financial help later? Although withdrawals used to be treated as income, which is counted more heavily in financial aid formulas than savings, that’s no longer the case.

    You can get a home equity loan (if you home did not have the problem of the recent collapse in home values). You could borrow at a lower rate than for federal or private college loans, and the interest expense was often fully deductible. But many banks have frozen home-equity lines of credit, even for people with a good credit score. While the credit crunch threatened the availability of college loans last year, you’ll have no problems now, thanks to swift action by Congress to keep the federal money flowing. And while the rates aren’t as cheap as on a HELOC, they’re reasonable. The best deals are on loans made directly to students. Freshmen can take out up to $5,500 in Stafford loans this year (the limit rises to $7,500 for seniors), and the top rate is 6.8%. If you need to borrow more, getting a federal loan for parents, called a PLUS, is a snap. Just about anyone with a halfway decent credit history can get one and borrow up to the full cost of attendance, minus any aid received, at a maximum 8.5% rate.

    The recently passed economic stimulus legislation included a welcome provision for tuition-paying parents: an expansion of the Hope Credit for educational expenses — now called the American Opportunity Tax Credit — to $2,500, from $1,500. It will be available for the 2009 and 2010 tax years. Unlike the Hope, which could be used only for expenses in the first two years of college, this new credit can be claimed for costs over four years. And more middle- and upper-middle-income families will qualify; if you make $180,000 or less ($90,000 for singles), you’ll get at least a partial credit. (The Hope phased out if you earned more than $120,000.) You can even claim the credit if you fall under the alternative minimum tax.

    There are other breaks available, like the Lifetime Learning credit (up to $2,000) and a tuition deduction of up to $4,000. But you can claim only one tax break per child each year, and the American Opportunity is the best of the bunch. One other benefit you may be entitled to: You can deduct all or part of the interest you pay on college loans, up to $2,500, if you make $150,000 or less ($75,000 for singles). Finally, the new rules from Washington also expanded the kind of bills you can pay from a 529 account to include computers and related equipment if it’s required by the college, as well as Internet access.