Click here to go to the NEW College Discussion Forum

I understand the new 28-school Financial Aid agreement says that the schools signing on will generally only consider 2 parents' income. Do you know which two parents this means, in the case of divorced and remarried parents? My situation is this -- I have custody of child, and am remarried. Ex-H is not remarried. Do I just fill out forms with my income (not including new H) plus ex's? And if the schools want new H's income, they will ask? or do I have to put down my entire household income, plus ex's income? HELP!!!!

By burningman on Monday, September 10, 2001 - 09:18 am: Edit

I think the plan is to make a list of all possible parents - biomom, biodad, all current and ex-spouses of biomon and biodad, step-parents' ex-spouses, as well as serious b/f and g/f relationships, rank them all by income and assets, and choose the two highest. ;-)

Did these clowns ever hear of antitrust laws? Why isn't the Justice Department looking into this? The only ones the are making things "fair" for are themselves, since they won't have to compete with each other for the best students using aid. Once again, the middle class gets screwed.

By Kendra S on Monday, September 10, 2001 - 01:46 pm: Edit

Can't tell if you're serious about choosing the two highest. If you are, how do you know this and is there somewhere I can read more about this?

By burningman on Monday, September 10, 2001 - 02:03 pm: Edit

Sorry, Kendra, my sarcasm got the better of me. I think this agreement between schools is the worst possible example of (apparently legal) price fixing. It smacks of the old days when the Ivies got together and agreed on what individual applicants would be awarded, except that this includes even more schools and automates the process! Much more efficient to have fixed rules that will result in nearly identical awards without all that wasteful discussion... The earlier shameful procedure was finally eliminated for legal reasons, and this new deal seems to be their answer.

No, I'm pretty sure they don't pick the wealthiest pair of parents from a list of real and pseudo-parents (probably because it didn't occur to them). Maybe one of the experts here can give you better info as to how they actually do the calculation - I'm just a frustrated parent!! Families didn't have much negotiating leverage to begin with, and this is going to take away even more. Not only are the offers from other colleges less likely to be better, but schools will use the cop-out, "Sorry, we'd be breaking our deal if we gave you more aid..." Arrrghh!!

By Domer97 on Monday, September 10, 2001 - 03:50 pm: Edit

Right on, burningdude... except you forgot "same sex partners"!!! Ya gotta think these Ivy guys aren't going to overlook THAT angle for very long when it comes to maximizing cash extraction!

By Dave Berry on Monday, September 10, 2001 - 08:50 pm: Edit

Hi, Kendra. I looked up this article for you from the Chronicle of Higher Education. It requires a password, so I took the "fair use" liberty of copying it for you. It explains some of the answers to your question.

http://chronicle.com/weekly/v47/i45/45a03301.htm

28 Private Colleges Agree to Use Common Approaches to Student Aid

Effort seeks to preserve need-blind admissions, but some question whether it can succeed

By ERIC HOOVER

The presidents of 28 private institutions are trying to turn back the clock to an era when, they say, financial aid was easier to understand, and more likely to benefit both students and colleges.

For the last two years, presidents from a group of selective institutions -- including Yale and Stanford Universities, and Davidson and Williams Colleges -- have been meeting to refine the formula they have traditionally used to calculate a family's ability to pay for college. In a report released this month, the group agreed on new guidelines that would, theoretically, undo much of the disparity in aid packages that has increased in recent years -- at least for applicants to the 28 colleges that signed on.

The policies will result in more aid for more needy students, according to the presidents in the group. Although some students might receive less money, all of the institutions have agreed that they will not reduce their total aid commitment.

The recommendations are an attempt to counteract the growing trend toward giving more money to the most coveted students instead of to those with limited resources. The presidents say their effort is crucial to preserving the practice of need-based financial aid.

"There has been an erosion in colleges' commitment to admitting students regardless of their families' income," says Hunter R. Rawlings III, the president of Cornell University, who led the group. "I fear that trend will further erode the public's confidence in the financial-aid system unless institutions make their policies transparent, consistent, and understandable."

Some aid experts, however, think it is too late, and that the consensus behind these policies -- even with 28 leading colleges backing them -- is too weak and too limited to prevent more competition and more merit-based aid.

The era that the college presidents are trying to return to existed for about three decades, ending in 1989.

During that time, about two dozen private colleges, including every Ivy League institution, agreed that they would jointly determine the appropriate aid award for each student admitted to one or more of the institutions. The colleges, known collectively as the Overlap Group, adhered to a financial-aid policy that, many believed, benefited colleges and students alike: Students could choose among the institutions without cost being a significant factor, and colleges could reserve their aid dollars for the neediest students.

Calling the Overlap Group's activities a violation of antitrust laws, however, the U.S. Justice Department began an investigation into the workings of the group in 1989. The colleges subsequently agreed to stop setting their aid policies as a group. According to many observers, the breakup helped bring about a harmful free-market flood that shaped the bidding wars of the last decade.

"The need-based aid system has been badly perverted since the Justice Department intervened," says Thomas G. Mortenson, a higher-education policy analyst at the Center for the Study of Opportunity in Higher Education. "It was the beginning of a long-term regression away from the original focus of financial-aid policies."

In 1992, Congress passed an antitrust exemption -- as section 568 of an unrelated law to improve public schools -- that permitted the presidents of private colleges to work together to refine the formula for awarding financial aid. The meetings were open only to the dwindling number of colleges that practice need-blind admissions, meaning that they admit students without considering a family's ability to pay tuition.

By the time the present group, which named itself the 568 Presidents' Working Group, began meeting to discuss new recommendations about two years ago, however, many colleges had started tweaking their approaches to awarding financial aid, and more students were receiving wildly different offers.

Specifically, many private institutions departed from a base formula, known as the Institutional Methodology, first developed by the College Scholarship Service, an arm of the College Board, in the early 1950's. Although some of the 568 colleges dropped it altogether, many deviated from it to fit their individual needs.

"Although the standard has remained the same, there's been more and more freelancing" among colleges in determining financial-aid packages, says James A. Belvin Jr., director of financial aid at Duke University, who led the group of financial aid officers that drafted the recommendations.

Michael S. McPherson, president of Macalester College and co-author of The Student Aid Game: Meeting Need and Rewarding Talent in American Higher Education (Princeton University Press, 1998), says that he became particularly alarmed, for example, when he learned that some private colleges were ignoring home equity for students they really wanted, and counting it against students they were less interested in.

"As need-based aid ceased to be a collaborative enterprise, we were risking making financial aid an empty promise," Mr. McPherson says.

As colleges have increasingly used merit aid to attract students, many of the presidents say, it has become harder for some middle-income students in particular to afford elite institutions because of soaring tuition costs and limited aid packages.

Students whose families were without assets were often getting full scholarships, but many students from families who had need -- but who were not living in poverty -- have been finding it harder to pay for highly rated colleges, many of which have price tags of at least $30,000 per year.

Recently, as more public universities, which tend to be cheaper, have entered into the competition, many of the institutions in the 568 group have started competing for middle-income students like never before. Since 1998, prominent institutions, including Stanford, Princeton, and Yale, have announced the addition of millions of dollars to their financial-aid budgets, putting much of it toward middle-income students.

The new guidelines are designed to give those families another boost. Under the plan, for instance, the colleges will view money that families put in tax-advantaged college savings accounts as the parents' assets, not the student's. That will be a boon for many families, Mr. Belvin says, because colleges value the assets in a student's name at 35 percent, as opposed to 5 percent for parents' assets.

Although Mr. Belvin cautions that each family's financial picture is different, he cites numerous examples of specific students at 568 colleges who stand to receive hundreds more in financial aid under the new guidelines. For example, two parents who together earned $70,000 last year paid $8,800 to their child's 568 institution, which has a tuition of about $25,000 per year. Using the new formula, Mr. Belvin calculates, the parent's expected contribution will decrease to $7,300, partly because the new formula will account for the fact that this particular family lives in one of the most expensive parts of the country, and because the family's considerable home equity will be capped at a lower rate.

Members of the group note that the 568 recommendations will not prevent participating institutions from applying their own professional judgment in individual cases, but Mr. Belvin predicts that the guidelines will reduce the number of "variations on the theme."

The changes will require that the participating colleges increase spending on aid; officials at many institutions decline to speculate on how much. But already there is concern about costs among some of the participating colleges. After all, within the 568 group there is a wide range in wealth. Yale's endowment at the end of the 2000 fiscal year was approximately $10-billion, for example, while Claremont McKenna College's was less than half a billion, according to the National Association of College and University Business Officers.

"We're upping the ante considerably, but I'd be lying to say that we've figured out how to pay for it over the long haul," says a financial-aid officer at a 568 college with one of the smaller endowments, who asked not to be identified.

Furthermore, not all private colleges that practice need-blind admissions are among the 568 group's signatory institutions. Notably absent from the list are Princeton and Harvard Universities, two of the wealthiest, which have already increased their financial-aid packages far beyond those of most of their competitors.

Although Princeton did not take part in the 568 group's discussions, Harvard did participate. Yet, in a statement issued after the 568 report was released, Lawrence H. Summers, the president of Harvard University, wrote that while Harvard supports "maximizing" need-based aid, "We judged the proposed formula, which would reduce aid for many Harvard students, to be an inappropriate constraint for us."

Some college officials question whether competitive bidding for students is so bad. The result of this competition, they argue, is that students and their parents can shop for the best deals, exactly what the Justice Department was seeking to promote.

Many administrators who are skeptical of the efforts by the presidents group prefer to remain anonymous because they do not want to publicly question the motives of their colleagues.

"The group is well-meaning," says a financial-aid director at a selective private college that is not eligible to join the group because it does not practice need-blind admissions. "But what they are trying to do is swing the pendulum to reverse decades of trends, and with fiscal pressures today, the student-aid system might have changed for good."

Several presidents in the 568 group insist that the recommendations are not a reaction to Princeton University's announcement in February that it would eliminate loans for undergraduates and replace them with grants.

But some observers say it is impossible not to view the recommendations in that context.

"Unless you're Princeton, with free money for everyone, you've been asking yourself how you're going to compete," says John Maguire, a onetime admissions director at Boston College and now chairman of Maguire Associates, an educational-consulting firm with more than 40 college clients.

"All of a sudden, the Darwinian law of nature, that says competition is a good thing, is causing quite a stir among all the other institutions that have financial limitations. These recommendations are a way of trying to level the field."

Still, the gap between the wealthiest institutions and the rest of the pack is widening rapidly, which will continue to tilt the balance in the financial-aid game. As many observers agree, the less wealthy institutions, which cannot easily afford to calculate financial-aid more generously, will not necessarily alter their own financial-aid standards because of the 568 group.

In February, Ronald G. Ehrenberg, a professor of labor economics at Cornell University and author of Tuition Rising: Why College Costs So Much (Harvard University Press, 2000), told The Chronicle that the competition set off by Princeton's new policy "will be another nail in the coffin of need-based aid." Like many observers, he is not ready to call off the dirge.

"This is a very admirable thing that the 568 group has done," Mr. Ehrenberg says. "But will these recommendations stop institutions from using financial-aid to compete for students? Probably not at all."

HOW PLAN WOULD CHANGE AID CALCULATIONS

Issue Range of policies now Recommendation
How to count home equity in calculations of family assets. Many private colleges include the value of a family's home. Some look at the reported value of the home minus mortgage debt; others cap equity at three times family income. Consider only home equity that does not exceed 2.4 times family income, an assessment aimed at helping families with soaring home values.

--------------------------------------------------------------------------------

How to treat parental income when parents are divorced and/or remarried. Some institutions seek financial information from the custodial parent only, while others may look at as many as four incomes by considering both parents and stepparents. First look at the resources of the two parents, separate from any current spouse; include only two parents when calculating a student's ability to pay.

--------------------------------------------------------------------------------

How to weigh variations in the cost of living in different parts of the country. Most institutions do not factor in cost of living. Take into account the higher cost of living for families in certain areas, including Washington, New York, and California.

--------------------------------------------------------------------------------

How to help families with multiple students in college. The federal method for calculating financial aid determines what a family owes each institution by dividing the parents' total contribution by the number of children enrolled, but some colleges do not use that approach and use various other calculations. Use a methodology in which parents' expected contribution to each college is reduced by 40 percent for two siblings in college, and by 55 percent if three are enrolled.

COLLEGES THAT ENDORSED AID PLAN

Amherst College
Boston College
Bowdoin College
Claremont McKenna College
Columbia University
Cornell University
Davidson College
Duke University
Emory University
Georgetown University
Haverford College
Macalester College
Massachusetts Institute of Technology
Middlebury College
Northwestern University
Pomona College
Rice University
Stanford University
Swarthmore College
University of Chicago
University of Notre Dame
University of Pennsylvania
Vanderbilt University
Wake Forest University
Wellesley College
Wesleyan University
Williams College
Yale University

By David Hawsey on Monday, September 10, 2001 - 09:27 pm: Edit

Kendra: Let me provide a voice of truth and reason to your specific question. The Federal Methodology, which is core to the process of figuring a student's (family's) expected Family Contribution (EFC), is a specific, legally directed process of assessing who should be exopected to pay what.

In a divorce, a college uses the income of the custodial parent where the student resides. Resides means where the student claims permanent residence. And unless courts specifically direct that a father (or mother) who is not living with the student must be responsible for a certain amount of financial assistance, the one-parent income is what we use. Plain and simple.

If a stepfather or stepmother legally adopts a child, things rightfully change, and both incomes might be looked at if both parent and stepparent are filing jointly, or even separately. But for the most part, colleges use the single parent income.

Many partners, once divorced, will tactfully work things out to the benefit of the student. For example, if one parent makes less than the other, students often are "housed" with the parent that makes the least to be considered more needy. Now, I'm not saying this is deceitful. No Way! If it works out that the parent a student lives with is in the best (and private) interests of the student and the family overall, AND the need is greater because that parent makes less AGI, then it is generally better for the student when filing for aid.

The rest of the postings, while interesting, complicated your real issue. Nobody is out to "get" families, collusion among colleges is illegal, and we're supposed to be (financial aid and admissions offices) here to serve you, not make your life horrible!

If we at College Confidential discover otherwise, we'll put up a posting, notice, or story to illuminate unethical, difficult or any unusual practice that does not serve the best interests of our students and families.

By burningman on Monday, September 10, 2001 - 10:15 pm: Edit

>>collusion among colleges is illegal<<

Hmmmm, David, how would you explain this agreement to limit competition on the basis of financial aid? It looks like Princeton and Harvard have started a price war, and the rest of the elite college world is trying to avoid participation. It's hard to see how this agreement benefits the middle-class family trying to hold down the real cost of a $150K sticker price education.

This isn't a league sport where maintaining parity is important to keep the game interesting. Why not let the schools with big endowments open their war chests and really go after good students? The rest of the schools may lose a few top students, but the total student population won't change. The schools without big endowments might actually fare better as the price-sensitive families gravitate to the more generous colleges.

By Saint of Circumstance on Tuesday, September 11, 2001 - 07:13 am: Edit

You don't sound like a parent. Are you an insider, or what? Which college do you work for? If you understand all of this adequately, you'll know that collusion is the act of setting prices within a specific range to remove the inequities in a consortium or group of schools. The Ivies et. al. were taken to court not because one decided to use their endowment to waive loans (a good thing), but because they wanted to ensure that they were not in a bidding war, thereby forcing the student to choose among schools on the basis of actual quality (what a concept!). Worse, though, collusion is at it's ugliest when schools call each other, or share lists of student and parent information for the sole act of determining which students are applying to what schools, and under what financial packaging parameters.

As for $150K, you know darn well that unless you are very wealthy, the Top Tier schools will not charge you full fare. Unlike Newsweek's article a few years ago: "$100,000 A Year: The Scary Cost of College", the reality is that even the so-called "prestigous" schools like the Ivies get scared about their market position, and if too many middle-income families see them as exclusionary to the common (albeit brilliant) student, their wings are clipped now and then: waiving loans is a bold and necessary move.

Few people pay full price. What's more annoying is the consumer mindset out there: American's don't balk at laying out $35,000 via a five-year loan, at 8% for a new SUV. So what if it has little residual value? But tell a parent they must pay half (or less) the cost of a decent college education, and they think it's an outrage.

So, burningman, what do you drive? And where did you go to college?

By Kendra S on Tuesday, September 11, 2001 - 09:12 am: Edit

To David Hawsey -- so you are saying that in my situation (divorced from child's father, remarried but new spouse has not adopted child, child's father has no obligation to pay college costs under divorce agreement) ONLY MY INCOME and assets count? That would be great, but I have to say that it's contrary to everything else I've heard and read. Even the article Dave Berry posts says that the 568 agreement schools will count "no more than two parents," so I would assume in my situation they would count AT LEAST me plus child's father, and maybe even stepfather. Where do I get reliable, accurate information about this? Do I need to contact individual schools?

By burningman on Tuesday, September 11, 2001 - 10:17 am: Edit

Hello, Saint. I'm really a parent, and I do realize that many middle class families don't pay full price. They may pay more than you think, though. I just went through the process with a kid at an Ivy, and the actual grants - what I would consider a TRUE reduction in cost - were pretty minimal. They count Stafford loans, etc., as "meeting need". Kinda like a car dealer (to continue your metaphor) saying, "Hey, we can come down $5,000 on the price - we'll loan it to you!"

My point isn't whether $35K for an elite education is a good value, a bad value, or how it compares to other expenditures we make. That's an entirely different discussion, and there are good arguments on both sides of the "elite value" debate. (Obviously, our family saw some value in a high-priced educational experience.)

What I do object to is colleges colluding to fix the terms of financial aid. This is bound to reduce price competition. There's clearly not much price competition at the sticker price level, except perhaps for Rice; The Ivies in particular stay within a few hundred dollars of each other. The REAL competition occurs when grants and scholarships are awarded. That's the threat the the Princeton no-loans policy posed to other colleges. Their sticker price may be similar, but for a middle-class family (who would almost certainly see loans as part of their so-called aid package) the no-loans move was a price cut, pure and simple.

Note that price fixing doesn't always involve prices, per se. Colluding on terms can be just as damaging. Can you imagine if the car companies got together and decided that none would offer a rebate in excess of $500? Or none would price a promotional loan rate below 6%?

PS - I went to a top 25, but not super-elite, college. The other day, I found a cancelled check for one-semester tuition and room & board: about $1600. That same check would be nearly ten times higher today - a bigger jump than just about any consumer expense.

By Kendra S on Tuesday, September 25, 2001 - 02:03 pm: Edit

Another message -- my second question of 9/11 was not answered -- is it really accurate that only my income, as the custodial parent, counts? Not the incomes of either my new spouse or of my ex-husband (child's father)? This is important b/c it changes my EFC from $50K to $20K (that's even if I count ex-H). Someone please tell me where I can find reliable information on how the 28-school agreement will deal with this!!!

By burningman on Tuesday, September 25, 2001 - 03:25 pm: Edit

Hi, Kendra. I tried to find the answer to your question, but wasn't immediately successful. Perhaps one of the other posters can give you some definitive info, although for the MOST accurate answer I highly recommend that you contact the aid office of the school in question. It's possible that an individual school could interpret the rules differently, and once you get past general questions it's always best to go right to the institution itself.

I did find an interesting UWIRE article that shed more light on the antitrust aspects of this deal. The article quotes Rebecca Dixon, NU's associate provost for university enrollment. Dixon notes that the 10 year ban on collusion between the Ivies and MIT (sparked by their previous illegal meetings to coordinate aid offers) was about to end, and that one reason for the agreement was that "universities wanted to announce the guidelines before the Justice Department could take new, possibly more stringent, action."

Even more revealing of the real intent of the accord was Dixon's comment that "the agreement might help stave off a bidding war." Clearly, bidding wars are good for families, and bad for schools.

The weirdest comment by Dixon was her justification for the agreement: "It might be good for (an individual student) who's getting $5 million in aid, but it doesn't benefit society." This makes no sense to me, as no one school would award an excessive sum even to the most qualified applicant, and funds from other schools would no doubt be put back in the pool of available funds should the awardee not attend.

Interesting that a student newspaper at Northwestern would be the one to illuminate some of the reality behind this deal.

By David Hawsey on Wednesday, September 26, 2001 - 09:43 am: Edit

Kendra: According to my Associate VP for Financial Aid here at Albion College:

"The process the FAFSA uses for determining need requires that ALL colleges use the new spouse's income in conjunction with the custodial parent when determining overall Expected Family Contribution (EFC). It does not matter if the step-parent has (or has not) legally adopted the child. The income is counted. However, individual schools may (or may not) count the salary of the non-custodial parent when figuring need. Only the school can answer this. For example, Albion College does not use the non-custodial parent's income at all. Kalamazoo College does use some percentage of the non-custodial parent's income."

Bottom line: New husband's income counts when determining need. Divorced husband's income may (or may not) be used. And when it comes to the consortium of 28 colleges, they may (or may not) decide to agree on using the non-custodial parent's income. Some might use it, especially in cases where the other parent is very wealthy, and the school would expect the parent to provide some support. Whether or not he (or she) actually intends to, does not matter to the college. They might expect it anyway.

You need to ask how the colleges you are considering treat the non-custodial parent's income, and specifically what percentage is counted, if at all.

By David Hawsey on Wednesday, September 26, 2001 - 09:50 am: Edit

Kendra: One simple addition to my last e-mail:
For this year's FAFSA, just use your combined income, and leave out your ex-husband's income entirely. It is no longer relevant at all.

By MacSurfer on Monday, January 21, 2002 - 04:11 am: Edit

Hello Mr. Hawsey & Others,
I had a question regarding how colleges regard home equity. The article said that that the 568 agreement would decide how home equity would be calculated. What exactly did it decide: (value minus mortgage, 3X parental income, or only considering values less than 2.4X income).
Do you know what policies Harvard and Princeton use?? Thanks for your time.

By Kendra S on Tuesday, January 22, 2002 - 08:44 am: Edit

To David -- thanks for the research on this. Your e-mail confirms my fear that they will count stepparent income. On your suggested "solution" of not putting down ex-husband's (child's father's) income, it won't help b/c stepparent's income plus mine puts us well over level to get aid. Not counting stepparent -- i.e., just both natural parents -- would put us in much better situation. Thanks for all the responses on this.

By Howie on Tuesday, January 22, 2002 - 08:55 am: Edit

Clearly, financial aid is yet another anti-family marriage penalty, no doubt part of a liberal conspiracy to undermine the nuclear family. The methods for computing financial aid encourage couples to live together without the benefit of marriage. Republican legislators have been working to eliminate the marriage penalty imposed by the IRS, maybe if we all write our legislators they will make the financial aid marriage penalty illegal.

By Dadster on Wednesday, January 30, 2002 - 04:26 pm: Edit

LOL! I never thought of financial aid as a "marriage penalty", Howie, but you DO have a point. The only catch is that the penalty may not go away if you get divorced, since the divorced spouse remains a parent.

By Kendra S on Friday, February 01, 2002 - 08:47 am: Edit

The marriage penalty aspect had occurred to me -- I've thought more than once, "if only we hadn't gotten married and just lived together..." then my finaid situation would be much better (although my own income with only one child would probably give me a not-insignificant EFC). On the other hand, I can see the argument for counting it -- it's income that contributes to supporting the family, etc.

By thg on Wednesday, January 15, 2003 - 01:31 pm: Edit

I wish I knew about this site before! It is very helpful.

I am stuck in the same divorced parents situation. My ex-husband did not re-marry and he has been unemployed since May last year. I re-married and we have a pre-naptual agreement that states our total financial independence, and that is the way we have conducted our matters for 3+ years. If EFC will consider my new husband's income, no financial aid could be possible. Can pre-naptual agreement help? ANother question is that I am applying for graduate school myself and should be in school in September. I see very contradictory information about parent being in school. I am planning on working part-time if I admitted to the grad school which will affect my ability to pay greatly. Will it have any effect on financial decisions this year?