In many cases, along with the “Come on down!" news, a financial aid award statement announces the package of assistance the college is offering admitted students. For those families who are blessed with exceptional incomes and resources, there may not be an aid package, simply because they are considered to be “full pay."
However, the vast majority of incoming students need some level of assistance in meeting today's sky-high college costs. That rush of adrenaline I mentioned can also cloud the eyes of family members, especially those of the newly minted college student.
The purpose of my post today may seem obvious and perhaps even redundant: Sound a strong word of caution about the pitfall of student loan debt. I can't emphasize strongly enough the need for caution about entering into a long-term (dare I say “lifetime"?) of debt.
To show you what I mean, here's part of a response I wrote to a gentleman who sent me a copy of his granddaughter's financial aid letter, which she received from a local four-year liberal arts college. He asked for my opinion. My response no doubt surprised him:
John, this is part of the problem for today's young people: student loan debt. Kaleigh and her parents (cosigners) will be on the hook for $19,660 of loans just for her freshman year. Take that number times four (if, in fact, she can graduate in four years) and Kaleigh (and Mom and Dad) will graduate with $78,640 of loan debt that, assuming that she doesn't go to graduate school, will begin to come due six months after she graduates.
Now, that almost $80K of loan debt could be more, due to something called “front loading." That's what colleges do to entice admitted students to enroll. They offer a “decent" (which this one isn't) aid package for freshman year and then gradually DEcrease the aid over the next three years, increasing loans. The student is “trapped" at the school and has committed to a degree program. If they choose to transfer, they may lose credits and need to go an additional semester or even year to make up for lost time and requirements.
[College name] isn't know for it's aid, as you can see from this package. Frankly, most college grads who accumulate $80K in loan debt never get it paid off because their employment income does not allow for making sufficient payments to overcome the advancing interest. This is a huge problem nationally and one that I have written about a number of times.
My suggestion? I would tell Mom and Dad to take Kaleigh to the financial aid office and say, “Sorry. If you can't do significantly better than this, then Kaleigh won't be able to attend." Then, throw those debt numbers at the aid officer. They'll probably do a little better, but my guess is that instead of $20K per year in loans, they may whittle that down to $18K or so. Still, a very lousy deal.
Options: Kaleigh could take a so-called “Gap Year," where she stays at home, works a meaningful job, matures a bit, and then reapplies this fall to schools that have a much better endowment that enables far better financial aid. I know nothing about her academic and EC profile, but I'm betting that she could probably get accepted into a school that's not too far from home that offers a better deal than $80K in loan debt.
Just my professional opinion, John. I hate to see deals like this. These colleges should be ashamed to offer lifetime debt disguised as “aid." …
I see these kinds of situations all the time. There's a great thread on the College Confidential discussion forum entitled The Answer is No! No, it's not worth it to borrow large amounts for: The poster who started this thread begins with this, as a continuation of her title:
1. Premed ~ particularly for an OOS public- even if it's a UC
2. Prelaw
3. NYU
4. All or nearly all engineering programs, including biomedE
5. Education degrees
6. Nursing degrees
7. MOST degrees….but especially: theater, film, psych, biology, sports mgmt, and marketing.
Take the time to go through this thread and check the rationale that the many responses display about not taking on enormous student loan debt. I'm not the only one preaching about this.
The “Trojan horse" I mention in my post's title may have made you think of Traveler, the University of Southern California Trojan's mascot:
The real meaning of Trojan horse, though, when it comes to financial aid packages, is that front loading gambit I mentioned to John above. Let's take a closer look at that.
Here are some helpful links. I'll highlight one of them through these excerpts, from Front-Loaded Financial Aid – How Will You Know?, by Wendy Nelson.
Have you heard about front-loaded financial aid? This is where a college attracts your student by offering a great financial aid package for the first year and then drops aid off for subsequent years. Is this something you need to be concerned about? If you can't afford to pay full sticker price for your student's college, you need to understand and be concerned about colleges front-loading financial aid packages!
Why does front-loaded financial aid happen? According to Mark Kantrowitz, senior vice president at Edvisors, in an article on The Hechinger Report, “institutions offer more to first-year students and their parents as a kind of “leveraging; they're using financial aid as a recruiting tool." Colleges are doing whatever they can to recruit students they are interested in. In many cases, throwing extra aid at the target student will increase the chances he or she will ultimately select that school …
Tips to Avoid Front-Loaded Financial Aid
- Understand what part of the financial aid package offered by a college is income dependent – This would be need-based scholarships and grants. Anything that is not strictly based on “merit" (GPA, ACT/SAT scores, class rank) has a need-based component.
- Ask questions about anything labeled a “grant" – These can be vague and hard to find listed on the college's website. Questions to ask include – What is the grant based on – need or merit? Is the grant renewable or is it for the first year only?
- Make sure you understand the renewal qualifications for any scholarships offered to your student – Does the student need to maintain a specific GPA in college? Is the renewal automatic? Does the student need to request the scholarship each year or fill out any paperwork in order to renew it?
- Think about what might change in your financial picture over four years of college – Are there years when you will have more than one student in college and years when you will only have one? This will make a big difference in financial aid eligibility. Make sure you run a Net Price Calculator for each potential school with each different scenario that may occur. This will give you a preview of how your financial aid eligibility may change.
- Ask direct questions about front-loading – Don't be afraid to question the financial aid office. Make sure you are talking to someone in a position of authority, like the Financial Aid Director. Ask straight out if you are guaranteed the same amount of aid for your student's second year and beyond. You may not get a direct answer, but you can gauge a lot by how much of an attempt is made to avoid answering the question!
Front-loaded financial aid can make a college look really attractive for the first year. Make sure you know the full story so that you can avoid any surprises for the second and subsequent years. Know what aid is renewable and know what is one-time only. For renewable aid, know the renewal qualifications and make sure your student understands that he or she needs to meet those in order to continue to be able to afford the school.
So, students and parents, look very closely at that financial aid award letter you received. Don't believe that everything you're offered there for your freshman year will come your way in following years, as you ascend through your undergraduate career. Go back up and reread my response to John about his granddaughter's financial aid package.
Does this sound like an aid package you've received? If so, beware.
Keep in mind that one of the big dangers of following a Trojan horse financial aid package is that you can easily “step in it" big time. Do your homework … and carry a shovel … to dig out the facts!
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Be sure to check out all my college-related articles at College Confidential.
