Myths of financial aid

Lynn O'Shaughnessy is a long-time observer of the higher-ed scene. She's the author of The College Solution, an Amazon bestseller. She writes three blogs about college: US News & World Report, CBSMoneyWatch and The College Solution.

In today's guest post O'Shaughnessy takes on four common misconceptions about financial aid:

Of all the myths swirling around college costs, the ones involving financial aid are probably the biggest whoppers.

Financial aid misconceptions can easily hurt families, which is why parents with a working knowledge of financial aid will often have a greater chance of capturing price breaks.

To help clear up some of the confusion, here are four of the most common financial aid myths that I routinely see:

Myth No. 1: I make too much money to qualify for financial aid.

You shouldn't automatically assume that you won't qualify for need-based assistance. How much income you earn is only one part of the equation. What also matters is the price of a particular college. For example, some families that don't qualify for aid at moderately priced state schools may be in line for considerable help at pricey universities.

At Princeton University, for instance, families making between $160,000 and $180,000 qualified during the current school year for an average of $26,450 in financial aid.

You can obtain an early assessment of whether your family might qualify for aid by using a free financial aid calculator. A calculator will produce an estimated Expected Family Contribution (EFC), which is what colleges would expect you to pay, at a minimum, for one year of school.

You can find EFC calculators at the College Board and at TuitionCoach.com.

Myth No. 2: My home equity will kill my chances for aid.

Most colleges won't care if you own a house and won't count home equity against you if you do. That's because the majority of schools rely on the federal aid application, the Free Application for Federal Student Aid (FAFSA), which doesn't even ask parents if they own a home.

Colleges that use an additional form, the CSS/Financial Aid PROFILE, will inquire about a family's home equity. With rare exception, however, these colleges will limit the amount of home equity they consider when they evaluate a family's ability to pay.

Myth No. 3. I have saved too much to qualify for aid.

In reality, less than 4 percent of American families who apply for financial aid are penalized for their savings. Here's a big reason why: colleges don't care how much you have saved for retirement. Your retirement nest egg won't impact any financial aid award. Financial aid formulas also let you shield a big chunk of your non-retirement money.

Myth No. 4. Completing financial aid forms is a waste of time.

The vast majority of families should complete financial aid applications because without filing these documents, they will have absolutely no hope of receiving need-based aid. Since many -- if not most - parents have no clue whether they will qualify for aid, it's essential they fill out the paperwork. If don't, you could be leaving tens of thousands of dollars on the table.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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