6 Financial Aid Traps Every Family Should Know About
Traversing the world of collegiate financial aid can feel like you are navigating a maze.
And if you go into the process blindly that is exactly what it will be: a confusing tangle of dead ends, backtracking, and worst of all, traps.
Luckily, we are here to help you plot a safe course through that maze so you can reach the financial aid waiting for you at the finish—the financial aid you deserve.
Today we’ll take a look at some of the worst traps and tell you how to avoid them.
6 Financial Aid “Traps” To Avoid at all Costs
1. The Confusing Financial Aid Award
If you are confused by your financial aid letter, do not feel bad—a very common mistake in the financial aid process is misunderstanding where the money for your package is coming from.
Colleges use various sources to fund financial aid packages and they do not all necessarily save you money.
Unfortunately, the financial aid letter is rarely clear about what type of aid you will be given (loan or grant) or how much you will owe in the long run.
The only way to effectively understand exactly where your aid is coming from and how much money you will owe is to ask questions.
Look at each item listed in your package and ask the college’s financial aid office whether it is a loan or a grant.
For loans, find out the interest rates, details about the maturation of the loan, and piece together what it will cost you in the long-term.
For grants, find out how and when the money will be dispersed. Some schools will provide the entire grant at the beginning, while others will spread it out over four years.
Be sure you understand every detail of your financial aid package, no matter how confusing it may seem.
2. The Fear of High Prices
Many families are quickly scared away from applying to private schools when they see a yearly price tag in the range of forty to sixty thousand dollars.
However, the sticker price is far less important than the net price.
This is the total amount you will pay out of pocket to attend a college after aid and other variables like travel or room and board are factored in.
The more expensive schools often offer far more financial aid, meaning your cost to attend could drop drastically to the range of a state school.
Calculate your net cost to attend a university before you cross it off your list for being too overpriced.
3. Drawing from Retirement to Help Defray Expenses
If at all possible you should avoid pulling money from your retirement accounts to help fund your child’s college education.
When you withdraw from your IRA, money that was previously not counted as assets in financial aid calculations can suddenly negatively affect the amount of aid you receive because it is now counted as income.
Then you face sharp penalties and fees for drawing from your retirement too early as well as owing taxes on previously untaxed funds.
The damage you do to yourself by tapping into retirement is far worse than taking out federal loans to pay for college.
And that’s just the beginning – follow this link for 3 more financial aid traps to avoid.
To your college funding & admissions success,
Co-Founder, College Planning Network LLC
Publisher, CollegeMadeSimple.com – The free educational resource of College Planning Network
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