You May Not Be Out Of Luck - college financial aid - Brief Article

Kiplinger's Personal Finance Magazine, May, 2001 by Kristin W. Davis

TRENDS The nation's PRICIEST COLLEGES are opening the financial-aid spigot.

IT'S A PROUD day when your son or daughter is admitted to a prestigious private university, such as Princeton or Duke. Then (gulp!) you get to figure out how to pay for it. But even as total costs at such schools rocket past $35,000 a year, there is good news: Financial-aid policies are becoming more generous, even for middle- and upper-middle-income families.

Princeton won headlines earlier this spring when it announced that it would substitute outright grants for student loans in its financial-aid packages, saving a typical family about $4,000 a year. But that's only the latest in a series of changes that Princeton has made to make more money available, especially to families in the $60,000-to-$120,000 income range. The university's financial-aid formulas now completely ignore home equity when considering how much a family can afford to pay, plus the school doesn't ask a family to contribute more when assets are held in a student's name. (Normally, students must cough up 35% of any savings in their names each year, while parents contribute about 5% of their assets.)

The bottom line is that a student whose parents earn $100,000 and have $50,000 in nonretirement savings, $100,000 in home equity and $10,000 saved in the student's name might receive $17,000 to $18,000 in grants (plus a campus job worth $2,250). That's enough to offset more than half of the school's $36,000 sticker price for 2001-02. And it's $12,000 or $13,000 more in grants than the same family would have received under Princeton's aid formulas five years ago, says financial-aid director Don Betterton. Even a family earning $150,000 a year might get a small grant (you can assess your own chances at www.princeton.edu/pr/aid/index.html).

Most private colleges don't have the wherewithal to match Princeton's generosity. But many other top-tier schools are heading down the same road. Duke University, for instance, also taps student assets at the lower parental rate and generally caps the family's expected contribution at 20% of household income. Yale exempts the first $150,000 in family assets from its aid calculations. Dartmouth, Duke, Stanford and others don't count home equity that exceeds three times family income.

And most top private schools now allow students who win outside scholarships to use that money to replace loans rather than offsetting grants in the financial-aid package. Such policies generally benefit middle- and upper-middle-income families--those most likely to have accumulated significant savings in a child's name or significant wealth in the family home.

Many schools have also made changes that benefit lower-income families. Princeton, for instance, reduced its summer-earnings requirement, and it covers student health insurance for families that earn less than $66,500.

Princeton's latest moves will put even more pressure on other schools to ante up. Harvard and the Massachusetts Institute of Technology have already announced that they will give students who qualify for aid an additional $2,000 in grants, to replace loans or work-study earnings.

More merit money, too. While the 30 or so top-tier schools that don't award merit scholarships are enriching need-based aid, many other private schools are competing for the cream of the crop by pouring money into scholarships that are awarded without regard to financial need. Vanderbilt offers a $10,000 merit award to 250 students each year. "We're not a leader in this; we're just keeping up," says Susan Barge, Vanderbilt's associate dean of undergraduate admissions. Similarly, Oberlin increased its budget for merit scholarships by 33% last year, to $2.8 million. The upshot is that students who can get in to one of the elite no-scholarship schools can also win a substantial discount at some excellent alternatives.

"We have always had honors scholarships for the very, very top kids," says Barge. The merit awards target "the group right under them--students who were vice-president of the student council, who made 1510 on their SATs, who were A-students."

As aid policies become less and less uniform, it's tough for families to know ahead of time how much they'll have to pay out of pocket. In fact, a $25,000 school could wind up costing more than a $35,000 competitor that has more-generous aid formulas or more-aggressive merit scholarships. So encourage your child to spread those applications around--and ignore a school's sticker price when deciding where to apply. --Reporter: ERIN BURT