SUNDAY, JUNE 6, 2010
KLMNO
Universities move to limit debt that graduates carry for years
debt from G1
to carry the debt burden into adult life. Many colleges with aid pledges still expect students to carry some loan debt, even if their families have saved for their schooling. It’s a higher-education maxim that students with a finan- cial stake in their education are more likely to complete it. “I recommend a one-third rule, where one-third of projected costs will be paid from past income [savings], one-third from current income and financial aid and one- third from future income [loans],” said Mark Kantrowitz, a financial aid expert and publisher of the Web sites
FinAid.org and Fast-
web.com. There is, in fact, variation in how colleges calculate a family’s fair share of college expenses. Asher’s group estimates a family with an annual income of $120,000 will be asked to contrib- ute about $16,000 a year toward Harvard or Yale, $33,000 toward Amherst or Swarthmore and $39,000 toward Duke. To some families, the “expec-
ted” annual tab comes as a sur- prise. “The issue that I deal with most
is that there is often a gap — or chasm — between what families believe is their need and what for- mulas proclaim,” said Sally Ru- benstone, a senior adviser at the college admissions Web site Col- lege Confidential. Princeton started the no-loan trend by eliminating loans in fi- nancial aid packages for low-in- come students in the 1998-99 aca- demic year and for all students in 2001. Other selective universities followed, with a flurry of aid pledges approved in 2006 through 2008. The pledges were big invest-
ments at a time of rising endow- ments. Those funds got ham- mered in the recession. Two col- leges, Williams and Dartmouth, scaled back their no-loan commit- ments this year. Other colleges have stuck with their pledges, de- spite the cost. Penn’s aid pledge, phased in over four years, pushed the uni- versity’s financial aid budget to $149 million for the coming aca- demic year, an increase of 78 per- cent in Gutmann’s six-year tenure. But it’s an investment, she said. “From our view, it maximizes our eminence as a university.” Strapped public universities are
focusing their more limited lar- gesse on students from low-in- come families, on the theory that middle-class families can afford some debt. The wave of no-loan pledges
hasn’t halted the steady rise in student loan debt nationally. Kan- trowitz estimated that the share of four-year students graduating with debt rose to 66 percent in 2008 from 46 percent in 1993, and that average debt rose in that span to $23,186 from $9,297, based on an analysis of federal data. But at colleges making aid
pledges, the investment is paying off.
At Princeton, the share of grad-
uating seniors with loan debt de- clined to 21 percent last year from 33 percent in 2001, and average debt has dropped to $4,957 from $16,000.
At the College of William and
Mary in Virginia, which eliminat- ed loans for low-income state resi- dents in 2006, the number of stu- dents from low-income families has increased by half in five years. “We recognized that low-wealth students had been grossly under- represented on our campus,” said Earl Granger, associate provost
for enrollment. The goal of the no-loan move- ment is to reverse the upward trend in student debt, particularly among students least able to re- pay their loans, in an era of steadi- ly rising college prices. The uni- versities were also “looking for a competitive edge,” Kantrowitz said. “They’ve had record applica- tions in the last few years, in part because of this.” Word is spreading among high school juniors and seniors that ex- pense is no longer a barrier to some of the nation’s most selective private colleges, including many of the top liberal arts schools. And that is a factor to consider when weighing different schools. For a middle-income student
today, “it may be less expensive to go to Penn than to go to Berkeley,” Gutmann said. But the aid pledges vary widely, and opinions differ on who can rightly claim to meet full financial need. Several dozen colleges have fi- nancial aid policies that meet the full demonstrated need of some or all students, including George- town, the University of Richmond and Washington and Lee Univer- sity in the mid-Atlantic region, as well as the University of Mary- land, the University of Virginia and William and Mary. Financial aid experts recognize
a smaller group of about 50 colleg- es with aid pledges that minimize or eliminate loans in clearly word- ed pledges, such that a family can predict what the school will actu- ally cost based on household earn- ings. Together, the schools serve about 8 percent of U.S. college stu- dents. Thus, the Institute for College Access & Success recognizes aid pledges from U-Md., U-Va. and William and Mary but not from
How financial aid pledges pencil out
These colleges pledge to meet the full financial need of low-income students. Some extend “full-need” pledges to all students.
Financial aid at selected universities for 2007-2008* Estimated
School and enrollment (Institution type and fall undergraduate enrollment)
price (Tuition, fees and living expenses)
College of William and Mary $19,349 Public, 5,792
University of Virginia Public, 15,078
$19,325 Aid Aid pledge Full grant aid for state residents with
family incomes less than $40,000, after expected family contribution.
Full grant aid for students below
200 percent of poverty level, after expected family contribution; full grant aid for students with need-based loans of $23,000 or more after four years, after expected family contribution.
University of Maryland Public, 25,857
$20,872 Full grant aid and/or work-study for
students at the poverty level; full grant aid, minus other aid received, for seniors with $15,900 or more in need- based loans.
University of Pennsylvania Private, 11,877
University of Michigan Public, 26,083
University of Richmond Private, 3,556
$49,080 Full grant aid and/or work study
for all students, with no loans for low-income students, after expected family contribution.
$21,657 $46,850 Full grant aid and/or work-study for
students with no expected family contribution.
Full grant aid for in-state students with $47 million
family incomes under $40,000 who are eligible for need-based aid; full need met for all admitted students through grants, work-study and public loans, after expected family contribution.
Georgetown University Private, 7,038
*Latest figures available SOURCES: Institute for College Access and Success; U.S. Department of Education; colleges
Georgetown, whose guarantee to meet full need includes an un- specified level of public and pri- vate student loans. “We’re highlighting these schools that have brought some transparencies to the process,” Asher said. The University of Maryland, whose full annual in-state cost averages about $22,000 in tuition, fees and living expenses, pledges to meet that figure through grant aid and work-study for students at the poverty level. The university
also promises full grant aid for seniors once they have accumulat- ed $15,900 in need-based loans, minus any other aid they have re- ceived. Sarah Bauder, director of finan- cial aid at U-Md., said she thinks the aid pledge is drawing more low-income students who might not have applied previously, “be- cause they think they can’t afford it.” Bauder sends a letter to every high school principal in Mary- land, every year, detailing the pledge.
THE WASHINGTON POST Federal data suggest the aid
pledges yield at least one consis- tent result: modest levels of stu- dent debt. A review of 2008 fig- ures, the latest available, for eight colleges that serve Washington area students found that no more than about half of students gradu- ated in debt. Average debt ranged from $12,859 at William and Mary to $25,586 at the University of Michigan, little more than the cost of a single year’s education for an in-state student.
devised@washpost.com Understanding how colleges hand out aid can improve your chances numbers from G1
colleges take merit as a given and extend financial aid only to those who need it, Ursinus offers siz- able scholarships to outstanding applicants from every economic strata, including the wealthiest. Surprised? Consider your own
college search. As a parent, you look for the best academic pro- gram for your student at an af- fordable price — the same basic process that colleges use to at- tract the best students, but in re- verse. The better you understand how colleges conduct their delib- erations, the better you can go about yours.
Measuring merit
Ursinus’s academic reputation once relied heavily on the sci- ences, especially its pre-med pro- gram. When John Strassburger arrived as president in 1995, he broadened the focus to include liberal arts and boosted academic expectations. “We believe out- standing students make other students outstanding,” he said. Richard DiFeliciantonio, who was then admissions director, be- gan reexamining Ursinus’s finan- cial aid policy, which focused al- most entirely on need. “The college was enrolling a lower percentage of low-need students and a high percentage of high-need students,” he said. “It was laudable, but not sustainable over the long haul. We were mak- ing the college commitment real- ly lopsided.” Hoping to attract stronger stu- dents who could also pay a higher portion of costs, if not the whole amount, Ursinus moved from a need-only financial aid policy to one that includes scholarships
sidized Staffords are available to anyone who applies. Public colleges rely on the FAF-
SA to calculate how much fami- lies are expected to contribute. Many private schools also require the CSS Profile, a more detailed financial aid application that us- es a different calculation, called the institutional formula, to de- termine how much you are ex- pected to pay. Some tailor the Profile to suit their criteria or re- quest a third application that bores even further into your fi- nances.
for top applicants. Other colleges, faced with a similar financial crunch, did the same. “We haven’t thrown need out the window,” DiFeliciantonio said, “but we’ve introduced merit into the equation.” To define what constitutes
merit at Ursinus, DiFeliciantonio, now vice president for enroll- ment, devised a system that rates applicants according to their grades, standardized-test scores and accomplishments.
Students who score 1300 or more on their math and verbal SAT and rank in the top 10 per-
529 plans: A path to paying for college
What they are: 529 prepaid tuition or savings plans allow families to make tax-deferred investments — and reap tax-free earnings. How to pick one: Nearly every state offers at least one 529 plan. The District, Virginia and Maryland offer their own 529 plans, with special state tax benefits. Virginia and Maryland also offer prepaid tuition and mandatory fee programs, which require pre-set payments for semesters or years of future tuition and offer less flexibility, but can deliver enormous returns. How they are run: Some of the plans, including the Virginia and Maryland prepaid tuition programs, are state-run. Others are managed for the state by private companies.
Sizing up area plans:
Maryland Prepaid College Trust: Locks in future college tuition at today’s prices. The trust will pay full resident tuition and fees at an in-state public college, or a roughly equivalent sum (whatever Maryland colleges charge 12 years hence) toward tuition and mandatory fees at a private or out-of-state college. There are numerous payment options: during the most recent enrollment period, the family of a current kindergarten student might make 144 monthly payments of $401 each, 12 annual payments of $4,552, or one lump-sum payment of $37,818, to cover four years in a state university in 2022.
Maryland College Investment Plan: A 529 savings plan managed by T. Rowe Price, with the usual tax benefits and many investment options, including age-based portfolios. Can be used toward any eligible higher education expenses. Virginia Prepaid Education Program (VPEP): Similar to its Maryland counterpart. VPEP lets Virginia families prepay the cost of tomorrow’s college tuition and mandatory fees. During the most recent enrollment period, the family of a kindergartener could prepay four years at a Virginia public university with a single payment of $45,972, 60 payments of $922 each or 145 payments of $487 each. Virginia Education Savings Trust (VEST): A 529 savings program administered by the Virginia College Savings Plan’s board. Can be used toward any qualified higher education expenses. CollegeAmerica: A 529 savings program offered by Virginia with the American Funds, which manages the program. CollegeAmerica is sold by financial advisers. CollegeWealth is available through two bank partners, BB&T and Union First Market Bank. This Virginia 529 option helps families benefit from the tax-free advantages of 529 accounts with the additional benefit of an FDIC-insured savings account. DC College Savings Plan: A 529 savings plan managed by Calvert Investments, with a variety of investment options, including age-based portfolios. Source: State plan documents
ILLUSTRATION BY TIM GRAJEK FOR THE WASHINGTON POST
cent of their high school class are typically assigned the highest rat- ing, a one. Those with at least 1100 total on their math and ver- bal SAT and who rank in the top third of their class rate a two. Stu- dents who fall somewhat below those criteria rate a three. But numbers do not represent the whole picture, DiFelicianto- nio said: “We read each applica- tion twice and have the latitude to bump a student up or down.” The school recently made re-
porting SAT scores optional for students in the top 10 percent of
their class, and it considers their other strengths, including the number of Advanced Placement classes on their high school tran- script and any leadership roles. Admissions counselors use the
ratings not only to decide which students to admit but also to de- termine how much merit aid, along with need-based aid, they will receive. Not surprisingly, stu- dents who rate a one generally are offered the best scholarships — $13,000 to $20,000 or more. Twos might be offered $10,000 to $13,000. The threes are less likely to get merit scholarships but can still qualify for need-based aid. Discomfiting as it might be to think your child is assigned a number, much less a dollar amount, such calculations often go on as colleges build their class- es and parcel out money. “Not everyone is a one, by defi- nition, and every school has its twos and threes — they are just at different levels,” DiFeliciantonio said. “We’re ultimately trying to match the quality of our pro- grams with the potential of our students.”
Knowing the formula
Once Ursinus decides which students to accept and how much merit money to offer, the finan- cial aid office takes over. Like ev- ery other college, Ursinus uses the Free Application for Federal Student Aid (FAFSA) to dole out federal money, such as Pell grants, and to give students ac- cess to federal loans, including Staffords. The federal govern- ment pay the interest on Stafford loans for students with need while they are in college. Unsub-
Which formula the college uses can make a huge difference in the potential for financial aid. For in- stance, the FAFSA considers few- er assets than the Profile; it ig- nores home equity as well as the assets of family-business owners with 100 or fewer full-time em- ployees. If you have significant wealth in home equity or in a small family business, the institu- tional formula will penalize you. The federal formula will not. But because the Profile gives a fuller picture of an applicant’s fi- nances and allows the explana- tion of special circumstances, it could give the financial aid offi- cer a reason to bolster need- based aid. Colleges must follow strict rules in distributing federal funds but can make their own rules for their money. Private colleges often have en- dowments, so they have more freedom than public schools to do as they see fit. Suzanne Sparrow, director of
financial services at Ursinus, con- ducts seminars for parents of prospective students. One family recently informed Sparrow that sky-high, ongoing medical bills offset their assets. She adjusted the financial aid calculation.
Assembling the awards
By early February, Sparrow had put together 500 awards, mostly for applicants who have been accepted through early de- cision. The software she uses shows how the FAFSA would cal- culate the expected family contri- bution, but she uses the institu- tional formula, with a few tweaks.
Sparrow reviews the applica- tion of a student whose parents’ household income exceeds $200,000. Their investments and cash accounts add up to about $150,000. Even before factoring in home equity, they do not qual- ify for need-based aid. But the student has been rated a one by the admissions office and is awarded a merit schol- arship of $20,000. Sparrow pulls out a yellow form on which she records the family’s expected contribution and award. To the $20,000 scholarship she adds $5,500 in unsubsidized Stafford loans, which the family can ac- cept or decline. The total award
comes to $25,500, about half of Ursinus’s $50,000 sticker price. The next student, also rated a one, qualifies for almost $21,000 in need-based aid owing to her family’s modest net worth — about $60,000 — and annual in- come, just over $120,000. Despite her rating, she has not been awarded a scholarship. “Maybe she had good SATs but she didn’t have enough AP class- es, or maybe she didn’t visit the campus and didn’t seem inter- ested,” Sparrow said. According to Ursinus’s guides, the applicant will be awarded a need-based grant of $21,000 — a good deal, but not the best one. “Every year, the student will
have to reapply for a grant,” Spar- row said. “A scholarship will nev- er change as long as the student meets the grade-point-average requirements.” The third application is from a
two-rated student whose family income is $125,000. Its biggest asset is home equity, $172,000. Under the federal formula, which ignores equity, the student would qualify for $25,000 in need-based aid, but the institu- tional formula qualifies her for only $11,000. Consolation? As a two, the student receives a merit scholarship of $13,000, and Spar- row adds a $2,000 grant. The final application under re-
view for the day is that of a stu- dent whose family makes about $26,000 and has no assets to speak of. Rated a one, this stu- dent is the kind colleges fight over, both to fulfill their educa- tional mission and to strengthen their incoming class. In addition to federal grants, Ursinus offers him a $13,000 scholarship, a $19,000 grant and subsidized Staffords, plus a job through the federal work-study program. But Sparrow cannot come up with a package that meets the family’s full need. Along with most colleges, the school often leaves a gap between award and cost, the better to spread its re- sources. The award falls short by $8,000. Nonetheless, Sparrow said, “with $32,000 in grants and scholarships, it’s a nice package.” Sparrow wraps up for the after- noon, having allocated more than $100,000 from Ursinus in just a few hours. The college has budg- eted $33 million for financial aid for the upcoming academic year, and it will use that money to at- tract the mix of students it wants. Message to parents? Encour-
age your kids to study hard. “In almost all schools, the aid
package will reflect the strength of the student,” DiFeliciantonio said. “The stronger the students are, the more options they’ll have.”
A version of this story originally appeared in Kiplinger’s Personal Finance magazine.
$51,466 Full need met through grants, work-
study and public and private loans, after expected family contribution.
$77 million $86 million $56 million
dispensed $24 million
Average debt of
graduates $12,859 $19,016
Business
G3
$20,091 $114 million $19,085 $148 million $25,586 $20,915
$23,333
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