A Financial-Aid Bias?

Well, I was right on one point: My daughter did indeed get accepted to her top picks. But along with those acceptance letters came the financial-aid packages. And those caught me off guard. That's because they were about $4,000 to $5,000 a year less than I had anticipated.

It turns out that I'm not alone in my sticker shock. As a full-time freelance writer, I'm among the one in 11 American workers who is self-employed, and most private colleges and universities have a built-in bias against the self-employed when it comes to evaluating financial need. How so? They routinely disallow some of the most basic deductions we take for the expenses of conducting a small business — things like meals and entertainment, travel and depreciation. For the self-employed, these are a cost of doing business no different from a corporation's spending on raw materials or advertising, but America's private colleges add them back to income when they calculate the resources a family has available to pay for college.

It's something that most self-employed parents may not realize, and with good reason: The financial-aid determination process is pretty much a black box. You put your data in, whether on the Free Application for Federal Student Aid (FAFSA) form handled by the U.S. Education Department or the College Scholarship Service (CSS) form processed by the College Board, send along last year's tax forms and out the other end come scholarship and loan packages from the colleges that have accepted your child. How those numbers are determined is up to each school's own financial-aid office. But there's a surprising degree of sameness in the way these offices operate — and in the lack of explanation they provide to parents. And it's no wonder they look so similar: They are all using the same playbook.

The College Board, a membership organization of most colleges and universities in the country, claims it doesn't tell schools how to evaluate financial need. "We don't tell them what to disallow or add back to income. That's a decision made by each college," says a College Board spokeswoman. In fact, however, the College Board does sponsor workshops that essentially do just that. For the past two decades in the Northeast, for instance, most college financial-aid directors have been attending the same annual workshop on evaluating parents' financial-aid forms sponsored by the College Board and run by a Vermont-based accountant named James Briggs.

"He's the guru," says Heather McDonnell, financial-aid director at Sarah Lawrence College in Bronxville, New York. "We all schlepp up there once a year and he tells us what to look for. He makes it clear that when you walk into the world of the self-employed, basically there are a lot of people who present themselves in ways that are not exactly a reflection of their true cash-flow position."

As a financial-aid officer at M.I.T. explains, freelancers who are willing to play fast and loose with the tax code may be misrepresenting some ordinary personal spending as business expenses. "You hear so much about people taking a whole group out to a restaurant and writing it off as a meal," he says. Many school financial-aid officials say they are particularly skeptical about expense deductions when someone has a full-time salaried job, and the Schedule C is for a second-income activity.

But for self-employed parents who don't fudge their returns, the result is often financial-aid awards that are lower than they should be. After all, many of the expenses on Schedule C are the sort for which companies routinely reimburse their employees — and no financial-aid office would add a parent's corporate expense accounts back to his or her income.

Fact is, unless parents inquire, they'll never know how their deductions were treated. Elizabeth McCormick, director of financial aid at Wesleyan, concedes that the school typically disallows and adds back business deductions, but explains that when a clear case is presented explaining the validity of a deduction, it's often allowed. "It has to be a two-way conversation in a process that doesn't really lend itself to that," she says.

Briggs himself insists that he doesn't tell financial-aid officials how to deal with independent workers. "I do try to teach them how to determine a family's real cash flow," he says. "I just show them how to look at the Schedule C."

In practice, however, calls to a number of highly rated private colleges, including M.I.T., Princeton University, Swarthmore College, Sarah Lawrence College and Wesleyan University, suggest that the typical approach taken by financial-aid officials is simply to disallow such Schedule C expense deductions as "meals, travel and lodging and depreciation," while allowing only half the amount reported for "automobile expenses." Nor is the practice limited to schools in the Northeast. The College Board sponsors seminars like Briggs' in other regions of the country, and the practice of disallowing freelance expense deductions appears to be widespread. Stanford University in California, for example, takes a similar approach. As a group, only public universities don't pose such a problem, since most just rely on the FAFSA form, and generally don't even ask for Schedule C information.

Fortunately, there are ways for self-employed families to fight back. Sarah Lawrence's McDonnell advises parents to be very clear up front about how they make their livings and to supply considerable detail about what their specific expenses are for. "We have to be careful, because we've been stung in major ways by freelance people," she says. "Submitting a balance sheet in addition to your Schedule C would be a good idea, because the Schedule C doesn't really explain much about the type of business you have, or exactly what your expenses are for."

In fact, many private colleges and universities can be responsive if self-employed parents appeal the aid award, taking the time to explain why their expenses are real and legitimately reduce the amount of cash they have available for tuition expenses. "We try to be understanding," says Cynthia Hartley, director of financial-aid policy and planning at Stanford. "A lot of our students come from families that are self-employed, whether as artists or entrepreneurs."

The trick is to make your aid appeal in a timely — and positive and congenial — manner, while the schools still have a pot of money to distribute. So you need to act fast. By May 1, when most schools require students to decide where they want to go, most of that money has already been allocated, so that even if a school's aid office wants to help, it may not have the resources to do so. But it's still worth appealing even later than that, because sometimes there's money set aside for award adjustments in the second semester.

In my case, I sent a letter to each school explaining my situation, and then followed it up with several phone calls. Appealing to the financial-aid offices of my daughter's chosen schools led to aid-award increases between $2,500 and $4,000 for next year — enough to make the difference between being able to send her with existing resources and having to take out a second mortgage to do it.