Common misconceptions regarding financial aid include:

Income is only one factor in determining your Expected Family Contributions (EFC). Other factors such as the age of the parents, the number of dependents and the number of children in college affect your EFC.

If you have a six-figure income and your child is attending your state university, chances are you may not qualify for aid. However, if your child is looking at Northwestern, Notre Dame or an Ivy League school with tuition over $30,000, you may have a need that the college can fill. If you have more than one child in college at the same time, thereby doubling your expenses, a six-figure income may not be adequate.

Family Income LevelApplied for AidReceived Aid
Below $20,00090%96%
$20,000 – $40,00083%93%
$40,000 – $60,00072%88%
$60,000 – $80,00064%87%
Above $100,00059%84%

SOURCE: US Department of Education, National Center for Education Statistics, National Post-secondary Student Aid Study: 1995-96. The detailed student level information provided is based on the most recent National Post-secondary Student Aid Study (NPSAS96), released in 1998.

The table above shows the percentage of full-time students at each income level who applied for financial aid, and the percentage of those applicants who, in fact, received some form of financial aid. It is interesting to note that the vast majority of all aid applicants receive financial aid in some form – even those with high incomes. The primary reason families do not get aid is simply because they fail to apply.

Ninety-one percent of College Aid is administered by colleges. Most of the rest of financial aid is offered through the Veterans Administration or employers, leaving only 1% available through outside private scholarships. Even if you should happen to receive any private money, colleges will most likely reduce any financial aid they are giving you on a dollar for dollar basis. Your time and effort spent result in no more aid then you would have gotten without a scholarship service.

Aid Administered by Colleges
    Federal Aid
    State Aid
    College Aid
Aid Administered by Others
    Employer Provided
    VA Programs
    Private Scholarships

Source: US Department of Education

The only time it makes sense to chase outside money is if you are attending a school that is giving you no aid or federal loans. Keep in mind that there is a number of free sources for this information; so there is no need to spend time and money with a service.

You should complete your financial aid planning prior to your child’s sophomore year of high school. While the financial aid application process starts fall of senior year of high school, any financial aid planning for the freshman year of college should be in place by 2nd semester of sophomore year of high school. For the application process you will gather the financial aid forms, all your financial records and the tax returns you just got back from your accountant. However, those tax returns are based on the tax year two year prior to freshman year of college- the tax year that began 2nd semester of sophomore year and includes first semester of junior year. This is known as the base income year.

College SophomoreAUGSEPTOCTNOVDecJanFebMarAprMayJuneJuly
College JuniorAugSeptOctNovDECJanFebMarAPRMayJuneJuly

The chart above shows in color the base income year [or income tax year] that relates to the award year in college.

If you plan to liquidate stocks, bonds, mutual funds, EE savings bonds or IRAs to pay for college, you should do so prior to the base income year. Doing so avoids the realization of income or capital gain which in turn would increase your EFC and thereby reduce aid eligibility.

That might be a good idea fo income tax purposes. But not for qualifying for college financial aid. The biggest mistake that families make when planning for college is having money in the student’s name. The problem is that 20% of a student’s assets are assessed for the Expected Family Contribution (EFC), while only 5.65% of the parents’ assets are assessed. The resulting increased assessment at the student rate would certainly negate any tax savings.

Asset Contributions


$10,000 x 5.65%

$565 assessment


$10,000 x 20%

$2,000 assessment


In the above example, having money in the student’s name results in a nearly $1,500 reduction in potential financial aid – a significant loss. Multiply that over four years and you are potentially missing out on $6,000 of college aid!

All federal loan programs have specific borrowing limits. With these caps in place, it is highly unlikely that your child will be able to borrow enough to cover the full cost of tuition.

Loan Type
Annual Limits
Lifetime Limits
Needs Based
Interest Treatment While Enrolled in School
None accrues
Limit for Subsidized/ Unsubsidized Stafford
$3,500 year 1
$4,500 year 2
$5,500 years 3-5

Subsidized -Yes

Unsubsidized – No

Subsidized – None accrues

Unsubsidized – Charged, but can be deferred

Additional Unsubsidized Stafford
$2,000 year 1 -4
Charged, but can be deferred
Federal PLUS
Cost of attendance minus any aid awarded
Charged, but can be deferred


Many different loan programs are available, but they fall into two main categories. Needs-based loans, as the name implies, go to students displaying the greatest need. Non-needs-based loans are available for virtually everyone completing a FAFSA form. The needs-based programs offer lower rates, reduced fees and better terms than the non-needs-based programs.

Qualifying for independent status is not as simple as not claiming your child on your tax return. For federal financial aid purposes, a student must meet one of the following to be considered independent:

  • The student is 24 years old.
  • The student is married.
  • The student is a actide duty U.S. Armed Forces or a veteran.
  • The student is a ward of the court or both parents are dead.
  • The student is a graduate or professional student.
  • The student has legal dependents (other than a spouse) and is providing at least half their support.

There may still be advantages to not claiming your child as a dependent. If your income is too high to qualify for the Hope Scholarship or Lifetime Learning Credits, by not claiming your child, he or she is able to use the credit on his or her return.

All schools must verify the financial information of at least 1/3 of the students to whom they provide aid, and many do 100% verification. If your application is chosen for verification, you will be required to provide the Financial Aid Office with copies of all relevant documents. The state aid organization and/or U.S. Dept. of Education may also require verification.

If you can not provide records, you will not receive aid. If you receive aid based on incorrect information, you will be required to pay it back and possibly pay fines or additional fees. If you submit a fraudulent application you are subject to a $10,000 fine, prison or both.

If you thought dorm food was bad.

Parents and grandparents often set up education trusts for children under the mistaken assumption that the colleges will not be able to include these trust funds when determining need. Financial aid applications require you to disclose trusts. It is assumed that the entire amount in a trust is available to be used even if the trust has been set up so that the principal can not be touched. Because a trust is considered the student’s asset, the entire current value of the trust is assessed at a 20% rate even though the student can not access the trust. This occurs every year you apply for aid.

In most cases, putting money in trust will result in a family paying more for an education than if they had been allowed to spend this money directly on tuition thereby being eligible for more aid.