COMMON MISCONCEPTIONS
These five areas below contain the most common misconceptions in college planning. Review these areas so you may improve your knowledge of the pitfalls to watch out for.
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Financial Aid
I don't qualify for financial aid, so I won't apply.
Nearly every U.S. citizen is eligible for some form of financial aid, including interest-subsidized federal student loans.
Financial aid is only for low-income families.
All families should file for financial aid, regardless of income. Even if your child does not qualify for need-based federal aid, some colleges and universities won't consider a student for institutional aid unless a federal application form is on file.
Financial aid is mostly loans.
There are two basic types of financial aid: gift aid and self-help aid. Gift aid includes grants, determined by your financial need, and scholarships, usually based on academic performance. For graduate students, there are also fellowships based on merit. Self-help aid includes loans, which must be repaid, and government work-study programs. At private schools, most of the financial aid awarded to students is gift aid.
Private schools always cost more than public schools.
A student attending an expensive private school might actually qualify for more aid than one attending a lower-cost public school. In many cases, the difference in the true cost--which is the cost of attendance (COA) minus gift aid--between a private school and a public school may be less than you might expect, or even non-existent. Therefore, it is important to choose a college based on academic interests and ability, not on cost.
I only have to file financial aid application forms once.
Students and parents must complete financial aid application forms each year to apply for aid. The important deadlines for filing these forms are the school's financial aid priority deadlines, which typically fall between January and April of the year prior to the student's attendance.
All schools have the same deadline for filing financial aid forms.
Each school determines its own financial aid deadlines, and these deadlines are not flexible. Apply early to ensure that your student's application is processed in time to meet these deadlines and for your family to receive all the aid for which you are eligible. For your family to receive aid, the school your student plans to attend must have complete and accurate financial aid applications on file before the last day of enrollment.
All colleges require the same financial aid application forms.
All families will use the Free Application for Federal Student Aid (FAFSA), but some schools and states may also require additional forms. Check with your state agency and the financial aid office at the school you plan to attend to see what financial aid forms are required and make sure that you file all of the required forms.
I can't complete my FAFSA form because my taxes aren't done.
You don't need to wait until you complete your family's yearly tax form before submitting the FAFSA form. It is better to file a financial aid form with estimated tax return information than to miss a school's financial aid priority deadline. You can provide the final tax return information later.
The amount of financial aid that I will qualify for will be the same at every school.
To determine a student's financial need, each school subtracts the Expected Family Contribution (EFC) from the cost of attendance (COA). Therefore, the aid package can vary from school to school.
Student Loans
Borrowing against your home to pay for college is the same as using a federal education loan.
If the borrower of a federal education loan (Stafford, Perkins, or PLUS) dies or becomes permanently disabled during the repayment period, the loan is forgiven. A home equity loan does not offer this option.
If I don't have enough cash, student loans are the only other option to pay for college.
In addition to student loans, there are scholarships, merit-based aid, need-based grants, education tax incentives, and college-friendly investments to help pay for college.
Federal PLUS loans must be taken out prior to the start of the academic year.
A parent can take out a federal PLUS loan after the student has started school. If the parent's credit is acceptable, the college must certify the loan. This certification must be completed before the last official school day of the student's current academic year.
A student has to take the student loans offered by the school in the financial aid Award Letter.
Students are not obligated to take the loan offered in the Award Letter. Families can choose among a variety of lenders.
All student loan interest is tax deductible.
Student loan interest is deductible only if the taxpayer's income falls within the "Modified Adjusted Gross Income" limits listed on the front page of his or her federal tax return.
All student loans are considered financial aid.
Only federally subsidized Stafford loans and Perkins loans are considered financial aid, because the interest on the loan is paid by the government while the student is in school. Federal PLUS loans are not considered financial aid because they are taken in the parents' name.
Scholarships
Only the smartest kids get scholarships.
There are many types of scholarships available to students that are not based on grades, including those for community service, financial need, athletic ability, or talent.
My child won't qualify for need-based financial aid so I don't need to complete the FAFSA form.
Many scholarships not based on need are available only if the FAFSA form is completed and submitted.
Do I need to pay to find scholarships?
No. There are good scholarship search programs available at no cost. It's important to note that a large percentage of all scholarships are offered through colleges, local businesses, and community organizations.
Scholarships are tax-free.
If a scholarship is used to pay for college costs other than tuition, fees, and books, the portion of the scholarship used to pay for these costs is considered taxable income to the student.
Scholarships won't affect my financial aid award.
At the school's discretion, scholarships can reduce your financial aid on a dollar-for-dollar basis.
529 Plans
529 plan withdrawals are always tax-free.
If withdrawals from 529 plans are not planned properly, the 529 plan withdrawal is often partially or completely taxable.
All 529s plans are the same.
The fees, terms, rate of return, and features of 529 plans can vary greatly from plan to plan.
I need to start a 529 plan when my child is young to receive any real benefit.
The sooner you start saving for college the greater will be your future benefit. However, there are many situations where you could receive tremendous tax and financial aid benefits from a 529 plan even if opened when your student is in high school.
529 plans have little effect on my financial aid eligibility.
529 plans will not have much effect on your eligibility for federal financial aid funds, such as federal loans and work-study. However, at the school's discretion, they may have a negative impact on your eligibility for a private school's institutional funds (grants and scholarships).
FInancial Management, Inc. can help you find the most accurate, up-to-date information regarding these and other topics related to saving and paying for college.
Career Planning and Student Positioning
Career Planning Tools Improve Students Career Choices
Career planning is often overlooked during the college planning process because students and parents have prioritized other criteria for college selection such as prestige, sports, image, influence of peers, teachers, Alma Mater, etc.
A major factor behind college dropout and transfer rates is a lack of career planning and a failure to make college decisions based on career goals that are compatible with one's talents and career-relevant personal attributes.
Research by the US Dept. of Education and American College Testing show that each year, approximately 50% of college freshman leave the college in which they first enrolled. Of those "dropouts", about 30% transfer to other colleges at least once, and 20% transfer twice and typically take six or more years to graduate. This can raise college costs drastically and seriously impact the family's bigger financial plan!
FMI College Planning can provide your student with a career planning assessment with online, self-administered career and education planning. With our Career Planning system the student will make more realistic and informed choices about majors and colleges leading to a more satisfying college experience, and a huge savings potential for parents.
ARE YOU READY FOR THE NEXT STEP?
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