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How to Think About Financial Aid and Paying for College

The Supreme Court decisions that struck down affirmative action programs and President Biden’s student debt cancellation plan will affect millions of people, whether they’re about to apply for college or are trying to pay it off.

For the first time in three years, student loan repayment is about to resume after being paused at the start of the pandemic, and Tara created a guide to the restart here. The Biden administration plans to carry out a new income-driven repayment program that could lower monthly payments for millions of people. Tara has an F.A.Q. for that as well.

And last week, the Biden administration vowed to try a new legal tactic for widespread student debt cancellation, using a different law from the one its failed effort relied on. Here’s the article our colleague Charlie Savage wrote about that.

We asked readers to send us their questions about paying for college and have answered a selection of them below.

How is it possible to pay for college?! It’s daunting. How can we let our 18-year-old get into six-figure debt? It feels irresponsible. — Janet Green, Burlington, Vt.

The most calming answer to this question is the one that Kevin McKinley, a financial planner in Eau Claire, Wis., gives out: Think about this in chunks.

If you can save half, a third or even a quarter of the cost of college over the first 18 years of a child’s life, that’s great. Then you can pay for some of the rest using your current income while your kid is in college and the final chunk by borrowing. Ron wrote about what he calls the McKinley Rule here and here.

Haven’t saved a cent? Don’t despair. If the cost is $100,000 for four years at a state school, a student can usually borrow up to $31,000 from the federal government. Working part time during the school year and full time during the summer can easily yield another $20,000 over four years. Then the parent or parents might pick up the rest, through belt-tightening; the day job; a side job; borrowing; or some combination of those possibilities.

Starting at community college is a fine option as well. Ron wrote about tactics for community college students here.

Do all these changes mean that the actual financial aid for international students will be limited? — Anastasia Mikaelson, St. Petersburg, Russia

None of the rulings are expected to affect financial aid for students coming from outside the United States, which was already quite limited.

“I doubt there’ll be any impact on international student admission, as most colleges consider them to be revenue centers,” said Mark Kantrowitz, a student aid expert and the author of “How to Appeal for More College Financial Aid.”

But it’s wise to learn as much as you can about a college’s individual policy on international students, review its statistics on how many it has admitted in the past and ask whether it provides them with aid. College websites often have this information, as well as resources geared for international students, including eduPASS and Education USA.

Only eight colleges that have need-blind admissions (which do not take into account a prospective student’s ability to pay) also meet the full financial need of international students. They are Amherst, Bowdoin, Dartmouth, Georgetown, Harvard, the Massachusetts Institute of Technology, Princeton and Yale, Mr. Kantrowitz said.

I’m a parent of a toddler. I long thought that a 529 was the best way to help pay for my child’s college. Then I learned from a parent of a college student that having one reduces the chances of financial aid, so it’s better to save that money in a retirement account and not report it to schools. Another parent of a college student then tells me they have a 529 for their kid, but does not tell the school to boost financial aid. What are the implications of following these two approaches: Gamble on financial aid, or be unethical?A California reader

There are many misconceptions about how 529 college savings plans will affect a prospective student’s eligibility for financial aid, but your initial hunch was correct.

These accounts — which are run by states and allow money to both grow tax-free and be withdrawn free of tax as long as the money is used to pay for qualified expenses — are usually the best way to save for a child’s higher education. And they have minimal effect on federal financial aid eligibility. In the end, income matters far more than savings when the federal government calculates your aid package, which draws on information inside your Free Application for Federal Student Aid, or FAFSA. (As for falsifying information on a FAFSA, beyond the obvious ethical considerations, there are potential fines and jail time.)

But as with anything related to personal finances, it’s complicated.

If the 529 is owned by the parent or the dependent student, it is considered the parent’s asset. This means only a small percentage, or up to 5.64 percent of the account’s value, will be counted when calculating your financial aid eligibility through the FAFSA. For example, if a parent saved $30,000, the aid would be lowered only by as much as $1,692. That’s something, but it’s certainly not worth giving up your savings strategy.

If the 529 account is owned by a grandparent or another relative, it is not included in financial aid calculations. Once the money is withdrawn to pay for college, however, it has counted as untaxed income reported on the annual FAFSA. Some good news: Grandparent withdrawals will no longer be reported on the upcoming financial aid form, released in December for the 2024-25 academic year, financial aid and 529 experts said.

Then there’s the question of retirement accounts. Some financial experts suggest putting at least some college savings into a Roth I.R.A., which isn’t taken into account for financial aid purposes until you start taking money out. Once you do, withdrawals are counted as income — and that could hurt your eligibility for financial aid a couple of years down the road. If the student will graduate in four years, distributions from a Roth I.R.A. on or after Jan. 1 of the sophomore year in college won’t affect aid eligibility, Mr. Kantrowitz, the student aid expert, said.

How much will it cost (for a four-year college degree) each school year to enroll full time in 2023, plus books and course-based devices/materials, eat meals on campus, reside in a college-operated dormitory or apartment, cover college-sponsored health insurance/medical costs and transportation to and from college from home four times a year — as an independent student earning only irregular income at poverty level — regardless of race, etc.? — Joel, Maryland

Independent students generally qualify for more federal financial aid than their dependent counterparts, but gaining such status isn’t as simple as moving out of your parents’ home or having them no longer claim you when they file their tax returns.

There are several qualifying factors, including being at least 24 years old; married; a graduate student; or having dependents of your own.

Independent students can generally borrow more — up to $57,500 in total for undergraduates, instead of $31,000 for most dependents — and are more likely to qualify for the maximum amount of Pell grants.

But figuring out the true cost will vary by institution, though most students end up paying less than the sticker price. The best way to get those estimates is to visit a college’s net price calculator and run the numbers for yourself.

What aid options (outside of debt-incurring loans) are available to those families who make “too much” to qualify for financial aid, yet do not earn enough to comfortably pay out of pocket? — William, Dallas

We get where those scare quotes are coming from. You are in disbelief that financial aid administrators think you can pay the full price.

In fact, those administrators are keenly aware of what they refer to as your “felt need.” That’s why they offer something called merit aid, which, at least in theory, is about what a kid has accomplished — and not about the money the family has.

How much merit aid might you get? It depends, and as Ron has written repeatedly, it’s not always easy to predict. You can find hints of how schools ladle it out, however, on the so-called common data sets that colleges publish. Look at section H2A (that’s the code for merit aid) to get a sense of how much schools give to people who don’t qualify for need-based aid — and the percentage of time they hand out any discount at all.

I am a rising high school senior, and I want to know how much your economic class and need for financial aid impacts your odds of being admitted. — Quinn Patwardhan, Kensington, Md.

Schools can be need-blind, meaning they don’t consider financial need when deciding whether or not to admit you. They can also be need-aware, meaning they might turn you away if they don’t have enough aid to make it affordable.

Colleges don’t always say on their websites that they are need-aware. Ron wrote about how schools communicate about these issues here. Both Muhlenberg College and Oberlin College have excellent (and humane) explainers about their processes.

Schools may also let you in but not provide a good aid package. In this case, you will need to figure out if you are able and willing to use loans or some other strategy to fill the gap between the price quote for attending and the amount you can pay.

Now that the Supreme Court has struck down race-conscious admissions programs, schools with large financial aid budgets may tilt the odds toward people who can’t afford the full price. A handful of schools, like Berea College in Kentucky, make a point of admitting only students who have, in Berea’s words, “limited resources.”

Is it worth it to consider going out of state, even though it will cost more? — Kathy Deligianis, Reston, Va.

Let’s start with the assumption that out-of-state schools will cost more. Some states have reciprocity agreements with other states that allow out-of-state students to pay in-state rates at public colleges and universities.

Private colleges offer the merit aid that we discussed above, and, if you receive a lot of it, an out-of-state private school could cost less than an in-state public one. But public institutions can and do play the merit aid game as well, especially for out-of-state applicants with grades and test scores that are above that institution’s average.

“There’s an incentive for admissions and financial aid officers to sprinkle merit aid so they can achieve the geographic diversity that they want to achieve,” said Shereem Herndon-Brown, co-author of “The Black Family’s Guide to College Admissions.”

Schools in prime athletic conferences often work particularly hard at this. “ESPN is the greatest marketing tool for colleges that is out there,” Mr. Herndon-Brown said. “But once they’ve garnered that interest, they have to dangle the carrot in front of the parents.”

As for whether an out-of-state school is worth any extra money it costs, that depends. Might your child learn more or get access to a program that isn’t available closer to home? What sort of friends could your child make who may be similar or different in a beneficial way? And could a faraway school’s reputation mean more to snobby hiring managers in a particular industry or to gatekeepers at certain graduate schools?

The answers can be elusive, but it helps to ask pointed questions at the start of the process.

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Mohammad SHiblu

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