10 Things College Financial Aid Offices Won't Tell You

Updated on April 4, 2008.

1. "You waited until April? Sorry, we gave your money away."
At first glance, the amount of financial aid available to students seems like a gold mine. According to education testing and information organization The College Board, students received more than $130 billion in aid during the 2006-2007 school year for undergraduate and graduate study; more than $86 billion came from the federal government alone. Problem is, you'll need a treasure map to find your share. The bewildering aid-application process stumps thousands of families each year, leaving many to pay more tuition than they have to.

Lots of students miss out on aid because of the confusing deadlines for the Free Application for Federal Student Aid (Fafsa), which everybody must complete to be considered for government grants and subsidized loans. The forms, which are available from colleges and at www.fafsa.ed.gov, are reviewed first by the government and then by your student's prospective school. While the deadline on the form is June 30, many schools' individual aid deadlines — listed in the colleges' materials but not on the Fafsa forms — are as early as February.

If you're the parent of a high school senior, keep a list of all the schools' different deadlines. To play it safe, though, apply for aid as soon as any admissions applications are in the mail. "Families need to submit their financial aid info as soon as they can after Jan. 1 preceding the student's freshman year," says Barry Simmons, aid director at Virginia Tech. While the forms typically ask for the previous year's tax information — a common reason parents postpone applying until April — it's completely legit to estimate tax figures based on last year's return and update them later.

2. "Your error, your problem."
If you fail to fill in some key parts of your Fafsa, the central processor will reject your form, sending it back to you and not to the prospective schools, resulting in a potentially costly delay. One error that parents make: putting their income and tax information in the student section or vice versa, which can't be fixed by the machine scanning the form. As a safeguard, Ohio State aid director Tally Hart recommends using the online form at fafsa.ed.gov; it will alert you if you leave questions blank and can even recognize some obvious errors, such as household income of $50,000 combined with a $5 million mortgage. Of course, there are many circumstances that can't be fully explained on a Fafsa form — say, if a family member was recently laid off. In that case, officers recommend writing a letter to the aid office stating your family's financial situation and mailing it at the same time as your Fafsa. Just make sure the letter goes directly to the college. Too many people "send a letter with the Fafsa [to the government office], and it's just destroyed," says Mark Lindenmeyer, aid director at Loyola College in Maryland.

3. "Our low tuition rate means less financial aid."
Many parents who haven't saved enough for college tell their gifted high school seniors not to consider pricey private schools. Ironically, those colleges may actually be the more affordable alternative. "The more expensive and prestigious the school," says Bedford, Mass., financial planner Tom Brooks, "the more likely it is well endowed and can meet 100% of need," thanks to alumni donation campaigns. "You might be sending your kid to a state school that [for you] costs more than a Harvard or an MIT or a Stanford."

To estimate how likely it is that your preferred schools will give you substantial aid, check a few statistics with the colleges themselves or using the annual "America's Best Colleges" survey in U.S. News & World Report, available at usnews.com for $14.95. Look for two figures: the percentage of undergraduates receiving grants meeting financial need, and the college's average discount, which is the percentage of a student's total costs — including tuition, room and board, and books — covered by grants. If they're both 50% or better, you can feel assured that your needs will be fairly met.

4. "You'll pay dearly for early decision."
Early decision is a big temptation at elite colleges: Students can apply months before other applicants, as long as they promise to attend if admitted. In most cases, the college offers these applicants a better chance of acceptance. But when it comes to getting aid, early decision can backfire. Why? Your commitment to attend if accepted means you have less leverage. "If you went to an auto dealership and threw yourself across the hood of a car and told them you would do anything to have that car, you're not in a very good negotiating position," says Linda P. Taylor, a certified college planning specialist in Agoura Hills, Calif.

If aid is your top priority, you're better off skipping early decision. Especially if your kid's SAT scores and GPA are above the college median, and she excels in extracurricular activities. If she applies in the spring and gets admitted, she'll have a better shot at negotiating a rich aid package.

5. "We don't buy your pauper act."
Every year parents are tempted to cheat the aid system by trying to look poorer on paper — by going on a spending spree, perhaps. There are, however, some perfectly acceptable ways to adjust your assets to maximize your aid potential. Step one is to trim any assets held in the child's name — in particular, custodial accounts (UGMAs or UTMAs), up to 35% of which the aid system will say should go toward next year's tuition. For assets in the parents' names, the rate is a much lower 5.6%. "Technically, parents can't touch UGMAs except for the benefit of the child, above and beyond food and clothing," says Tom Brooks. But "you can use the UGMA to pay for things like summer camp, tutoring, school trips or a car [for the kid], thus diminishing the account."

But if you're looking to sock away some free-floating cash in your name, you could give up to $12,000 each — any more will trigger the gift tax — to grandparents or other relatives outside your household, who could then help pay tuition bills; aid officers can't touch their assets. If your kid is a few years from college, be sure to contribute the maximum to 401(k)s or IRAs. Colleges won't expect you to tap retirement savings to pay your share of tuition.