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Discount U.
By Lynn O’Shaughnessy, March & April 2006
You can cut college costs by stashing cash—and getting schools to compete for your kid
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Cindy and Ian Bottoms never expected to cover all the college costs for their son, Neil. But until he began looking at schools for 2007, they didn't realize how big the gap between their savings and the price of his education might be. A year at a state school is $16,000 on average; private colleges can cost more than twice as much.
The Problem
Paying for the college of Neil's choice could be a huge burden to the Bottomses. Neil, a top student at a San Diego high school, has his heart set on a private college. But while his parents, who earn $56,000 a year, have done an admirable job setting aside $30,000 toward college, it's clearly not enough, even with the added $20,000 that Neil's grandmother put in trust for him. According to a calculator at www.collegeboard.com, private schools would expect the family to pay almost $21,000 the first year. What can they do to draw more aid?
The Plan
The Bottomses can maximize aid offers they get in two ways: by reducing their cash and by getting colleges to compete for their son.
Neil's parents should begin by moving what savings they can spare into their own retirement funds, which colleges don't expect you to raid. As their bank accounts drop, so will the "Expected Family Contribution." Big trap: money in your child's name. Schools assume much of it can go toward education. Families would do better to spend such funds before applying for aid, by buying that car their child will need or paying for music lessons or camp, notes Gary Carpenter of the National Institute of Certified College Planners.
Where should you invest money earmarked for college? Best choice is a tax-advantaged 529 account. A dollar in one of these state-sponsored plans trims just 15 cents from need-based aid, a Harvard study found. (To learn more about 529s, visit www.savingforcollege.com.)
Part two of the Bottomses' plan is to get colleges vying for Neil. Since suitors spend more on those they badly want, Neil should stick to schools where his test scores and grades place him in the top fourth of applicants. (You can find these statistics at www.collegeboard.com.)
Neil might also try universities a few time zones away. Because schools look for a diverse student body, kids who'll travel have added appeal. "California kids are in hot demand everywhere in the U.S. except the West," says Rick Darvis of College Funding in Plentywood, Montana.
Another tactic: applying to schools in the same athletic conference. Though Neil's no athlete, schools that compete on the playing field are often fierce academic rivals, too, Darvis says.
As a final bargaining chip, Neil should apply to at least one in-state public university. An offer from a low-priced state school can get a top-dollar college to up its aid package.
If that's not enough, says Carpenter, Neil's folks can push for a better deal: "Parents can say, 'Can you come close? Because if you can't, I'll take the state's price—and start saving for graduate school.' "
Lynn O'Shaughnessy is a syndicated financial columnist and the author of three books, including Retirement Bible (John Wiley & Sons, 2001).
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