Part 4: Answers to Readers' Questions on Financial Aid When a college says they are need-blind, is that usually true, or they just blowing hot air? Need-blind admissions mean that the college does not discriminate against students who demonstrate financial need. The college admits them without regard to ability to pay. However, some colleges that are need-blind during the regular admissions cycle become need-sensitive when admitting students off the waiting list, especially if they've already exhausted the financial aid budget. Some colleges may be need-blind for U.S. citizens and permanent residents, but become need-sensitive for international students. A need-blind admissions policy doesn't prevent a college from granting admissions preferences to developmental admits, which are students with exceptionally wealthy parents who might donate significant sums of money to the college. Likewise, some colleges with need-blind admissions policies will grant admissions preferences to children of alumni. Need-blind admissions does not mean that the college meets the full demonstrated financial need of all admitted students. This can lead to an "admit-deny" situation, where the college grants the student admission but fails to provide the student with the financial aid needed to be able to afford the college costs. A need-blind admissions policy also works against low-income students. Few, if any, colleges maintain an admissions preference for low-income students. The greater selectivity of more elite colleges may indirectly discriminate against low-income students. Low-income students cannot afford to pay for SAT test prep classes. Instead of participating in extracurricular activities, athletics or learning a musical instrument, they may be working one or two part-time jobs to help put food on the table. Frankly, a low-income student who succeeds academically despite adversity is much more impressive than a wealthy student who had every opportunity handed to him or her on a silver platter. But the elite colleges don't seem to recognize this. Please explain in detail your often-repeated assertion that everyone should apply for financial aid. I have used every financial aid calculator out there, and they all say the same thing. Our expected family contribution is double the cost of attending the school. My daughter has a list of 22 potential schools. Most offer no merit aid. Those that do, do not require a Fafsa or other need-based form to be submitted in order to apply for merit aid. She is applying to at least two schools that are "need-aware." We definitely have no interest in obtaining a loan. So why would we want to take the time to fill out a financial aid form? If a family is capable of paying for all college costs without incurring any debt, perhaps they do not need to apply for financial aid. But families have a tendency to overestimate eligibility for merit-based aid and underestimate eligibility for need-based aid. There are also subtle factors that can have a significant impact on eligibility for need-based aid, like the number of children enrolled in college. For example, a family might not qualify for need-based aid when their first child enrolls in college, but will qualify for financial aid when their second child enrolls in college. When there are two children in college at the same time, the parent contribution portion of the expected family contribution, or E.F.C., is cut in half. The E.F.C. can also be affected by changes in assets. Assets in the child's name increase the E.F.C. by 20 percent of the asset value. The only exception is for 529 college savings plans, which are treated as though they are parent assets. A portion of parent assets are sheltered from the need analysis process, and the remaining reportable assets are assessed according to a bracketed scale with a top bracket of 5.64 percent. Families who save for college in the student's name often spend down the child's assets first, yielding a significant improvement in aid eligibility each subsequent year. Thus, it is important to apply for financial aid every year, even if the family did not qualify for financial aid last year. If our family has absolutely no chance of receiving any need-based financial aid, is it necessary to complete Fafsa forms to be considered for merit-based scholarships? Anonymous Guest Some merit-based scholarships require all applicants to file the Fafsa to ensure that they receive all financial aid to which they are entitled. This is especially the case for college-controlled merit aid. Some merit-based scholarships have a financial need component that determines the amount of the award. There are also about 200 merit-based scholarships that require the applicant to file the CSS Financial Aid PROFILE form. The Fafsa is also a prerequisite for the unsubsidized Stafford and Parent PLUS loans, which do not depend on financial need. How are trusts treated for financial aid purposes? I am the beneficiary of a very modest trust. My daughters are not beneficiaries until I die. Is the trust counted as part of my assets? Polly A trust fund is considered to be an asset of the beneficiary, even if the beneficiary's access to the trust is restricted. Restrictions established by the benefactor who established the trust are considered to be voluntary. There are only a few exceptions. If the trust was involuntarily restricted by a court order, it is not reported as an asset on the Fafsa. For example, a trust might be established by a court to pay for future medical expenses for an accident victim. If ownership of the asset is in dispute (e.g., a testamentary trust established by a will that is being contested), the trust is not reported as an asset until the dispute is resolved. Contingent beneficiaries are ignored until they become actual beneficiaries. If there are several beneficiaries, each beneficiary reports as an asset only their share of the trust. If the trust does not specify otherwise, each is assumed to have an equal share of the trust. Some trusts have complicated structures, in which some beneficiaries receive the income from the trust while other beneficiaries receive the principal balance of the trust at a future date. In such a situation, the value of the asset is based on a net present value calculation. This discounts future cash flows from the trust according to an assumed discount rate, like an inflation rate or a risk-free rate of return. The trustee can calculate this figure for the beneficiaries, or one can use a calculator like FinAid's Trust Fund Calculator to calculate the net present value. Otherwise, the value of a trust is the current principal balance of the trust. If you don't apply for need-based financial aid for the freshman year, can you apply for it in subsequent years? Sarah Murray A family may file the Fafsa even if they did not apply for financial aid last year. If the student did not apply for financial aid as a freshman, most colleges will allow the student to apply for institutional grants in subsequent years. The main exception is when a student is admitted off of the waiting list. If a college admits the student off the waiting list because the student does not demonstrate financial need, some colleges will refuse to award institutional grants in subsequent years, unless the family's financial circumstances have changed significantly. My daughter has secured admission to an excellent college for her freshman year, with an amazing financial aid package that does not include loans. I had quite a low adjusted gross income for 2011 which, in great part, helped make the offer so good. I am worried about how to calculate any increase in my E.F.C. for her sophomore year (it was barely $1,000 for this year). I've also found conflicting information regarding putting money into an I.R.A. as a way of lowering adjusted gross income for Fafsa renewal purposes. Can you please give me some advice on financial aid for years 2 to 4? Thanks so much! Wisconsin The E.F.C. is calculated the same way for the renewal Fafsa. If the family's financial circumstances are unchanged, the new E.F.C. should be within a few hundred dollars of the previous year's E.F.C. The E.F.C. typically increases by about $3,000 for each $10,000 increase in total income. However, a change in the number of children in college can have a big impact on the E.F.C. There are also some income thresholds built into the formula that can cause a big increase in the E.F.C. when income exceeds these thresholds. Even if the student's E.F.C. is unchanged, the financial aid package may differ. Financial need is based on the difference between the cost of attendance and the E.F.C. Financial aid is based on financial need. If the college costs increase or the E.F.C. decreases, the applicant may qualify for more financial aid. Money contributed to an I.R.A. or other qualified retirement plans will not be reported as an asset on the Fafsa. However, the current year's contributions will be counted as untaxed income on the Fafsa. Since the E.F.C. is more heavily dependent on income than assets, contributing more money to a retirement plan will not significantly affect eligibility for need-based financial aid. Distributions from a I.R.A. will also count as income to the beneficiary, hurting aid eligibility. Even a tax-free return of contributions from a Roth I.R.A. will count as untaxed income on the Fafsa. So retirement plans are not an effective way of saving for a child's college education. I will be applying to graduate schools, and there is limited information on financial aid out there. I am seriously concerned about financing this experience but also understand I will not get far in my major without going to graduate school. Do you know of a great Web site that explains options? Right now, it seems as though I have to go to each school's Web site, and it is getting a bit tiring. Megan Many Web sites about financial aid for undergraduate school also include information about financial aid for graduate and professional school. For example, the FastWeb scholarship matching service also includes information about graduate fellowships and FinAid includes information about loans for both undergraduate and graduate students. Federal aid for graduate school is mostly in the form of loans. Graduate students are eligible for higher loan limits in the federal Stafford and Perkins loan programs and can borrow up to the full cost of attendance, minus other aid received, from the federal Grad PLUS loan program. Institutional financial aid tends to be less centralized at the graduate level, with each graduate department managing its own fellowships and assistantships. Many graduate students are financed through teaching and research assistantships, in which the student gets a full or partial tuition waiver and possibly a living stipend in exchange for performing teaching or research duties. Some graduate students, especially those in M.B.A. programs, may be able to get their employers to pay for their graduate degree in exchange for a service requirement (e.g., agreeing to work one or two years after graduation for each year of support). Graduate students are usually not eligible for the Hope Scholarship tax credit (also known as the American Opportunity Tax Credit) and must instead rely on the Lifetime Learning tax credit. The National Association of Graduate-Professional Students (Nagps) provides a national voice for graduate students. Their Web site includes lists of resources for graduate and professional students. I'm 17 and will be when (at this point, if) I enter college. I've received acceptances from two Ivies. What if my parents are divorced and neither one wants to provide financial information or pay for college? How should I handle the financial aid process? It seems paying for college is really attached to the parent and not the student (who is, after all, the beneficiary of the education). I don't even think the Fafsa will be processed without information from at least one parent. esimo When a student's parents are divorced, only one parent is responsible for completing the Fafsa. However, some colleges require the noncustodial parent to complete a supplemental financial aid form for the student to qualify for institutional grants. About 250 colleges require students to complete the CSS Financial Aid PROFILE form, which may require the other parent to complete a Noncustodial PROFILE form. Divorced parents are sometimes reluctant to complete financial aid forms because of privacy concerns. They fear that the college may release their income and asset information to the other parent or the student. The best solution is to let the college know about the situation. Colleges may not grant a dependency override merely because of parental refusal to complete the financial aid forms or to pay for college. But the college financial aid administrator can talk to the parents and sometimes convince them to complete the financial aid application forms by addressing their concerns.