What do you do if the government's Expected Family Contribution is
just too high or you can't manage the unmet need in your financial aid
package? This page provides a few tips on finding the necessary resources.
See also FinAid's pages concerning
cutting college costs
and practical credit crisis tips.
Your first step should be to talk to the financial aid office at the
school. Ask for a professional
judgment review and tell them about anything unusual about your
family finances and anything that has changed since last year.
Sometimes the school can make adjustments that will result in more
Ask Relatives for Help
Asking relatives for money is never easy, but it is easier when you
are asking for help with a worthwhile cause like your children's
college education. Their grandparents may be interested in helping
because your children are their legacy.
Relatives can pay the money directly to the college without incurring
any gift taxes. (A payment for the education of a designated
individual is not a charitable contribution and cannot be deducted on
their income taxes.) Be sure to ask the school whether this will
affect the student's need-based aid eligibility. If the school will be
treating it as a payment on the student's account, it will generally
have no impact on aid eligibility. But if the school treats it as a
resource, it will reduce aid dollar-for-dollar.
There are other ways your relatives can help that will not have an
impact on the student's financial aid package:
- If the grandparents set up a Section 529 College Savings Plan
(or a prepaid tuition plan after July 1, 2006) where they are the
account owners and the student is the beneficiary, it will not be
reported on the FAFSA as an asset. Qualified tuition plans like these
are only reported on the FAFSA when either the parents or the student
are the account owners. (Some private colleges, however, will count
all such plans as assets for awarding their own financial aid.)
Distributions from qualified tuition plans are also not counted as income.
- If the grandparents pay the money to the parents, instead of the
student, it will have no impact on aid eligibility. Gifts to the
student are reported on Worksheet B of the FAFSA. Gifts to the
parents of a dependent student, however, are not reported on the FAFSA
due to a quirk in the definition of untaxed income and
benefits. (Section 480(b)(7) of the Higher Education Act defines
untaxed income and benefits as "cash support or any money paid on the
student's behalf, except, for dependent students, funds provided by
the student's parents". Since this definition is limited to money paid
to or on behalf of the student, gifts to the student's parents are excluded.)
- A gift to the student after the student graduates will not affect
need-based aid, so long as it is not a completed gift until after the
student graduates. (Trust funds, on the other hand, are counted as a
student asset and will severely impact aid eligibility.)
Borrow the Money
Education debt is good debt, in that it is an investment in the
student's future. Just be careful to avoid borrowing more than you can
afford to repay.
There are many options available for borrowing money to pay for your
children's education. We are listing them in order from least to most
- The Perkins and subsidized Stafford loans have the lowest interest
rates and the government pays the interest while the student is
enrolled at least half time. But the loan limits are low, so this may
not cover the full cost of education.
- If there is additional Stafford Loan eligibility, you can borrow
it as an unsubsidized Stafford Loan.
- The PLUS loan is a parent loan that allows you to borrow up to the
full cost of attendance, minus any aid received. But this is a parent
- Home equity loans and lines of credit may be an option for some
families. They are available as either fixed rate loans or variable
rate loans. Again, these are parent obligations.
- Private education loans have a variety of terms. They are
generally based on credit with terms that are pegged to your credit
score. These are student obligations, but often the parent must cosign
You can also make the federal education loans more affordable by
consolidating them, which makes a variety of alternate repayment terms
available. These include extended repayment, graduated repayment, and
income contingent repayment. These can cut the size of the monthly
payment significantly (by as much as half), at a cost of increasing
the term of the loan and the total interest paid over the lifetime of
Cut your Budget
FinAid has two budget calculators that can help you manage your budget.
- The student budget
calculator calculates the difference between education expenses
and income, identifying when you are spending beyond your means.
- The family budget analyzer
compares your expenses against regional and national norms, helping
you see where you are spending more than most other families. This can
help you identify budget categories where there are opportunities for
saving by cutting expenses.
Some of the most common budget areas where savings is possible include:
- Meals & Entertainment
- Scale back or eliminate the family vacation. Travel
and lodging costs are often the most expensive component of the family
vacation, so consider staying local to cut costs.
- Cut back on eating out. Eating in is often much less
expensive than dining in restaurants. Homemade coffee is much less
expensive than trendy coffee shop lattes.
- Reduce other entertainment spending, such as
cable/satellite TV, movies and spectator sports. Borrow books and
movies from the library instead.
- Substitute free events and less expensive
alternatives for paid entertainment.
Walking, jogging and biking are not only free, but healthy
too. Matinee movies and DVDs are often less expensive than first run
shows. Eat fruit instead of candy and fast food, especially if you buy
food at the grocery store and brown bag meals instead of raiding
- Avoid replacing an older vehicle, or get rid of an unnecessary
car. You will not only save on car and fuel costs, but also on auto
insurance. Also consider replacing more expensive cars with less
expensive cars and less fuel efficient cars (SUVs, Trucks) with more
fuel efficient cars (compact cars, hybrids). Change your engine oil
and filter as per the manufacturer's recommended schedule and maintain
proper tire air pressure.
- Use public transportation to save on gas and to make your commute
- Buy gas at the lowest octane level for your
car. Higher octane fuel does not improve performance and adds to your
fuel costs. Also keep your car's tires properly inflated.
- Shopping around for auto insurance can save you
hundreds of dollars for identical coverage. Increase the deductible on
the collision and comprehensive coverage for your car.
- When shopping for air travel, compare the airfares
available at low-cost carriers and at all nearby airports. Also
check whether an advance purchase ticket with a Saturday night stay
saves money. Be flexible on your travel days.
- If you pay someone to mow your loan or a housekeeper to clean for
you, doing the work yourself can save hundreds or thousands of dollars
a year. It is also a good source of exercise.
- Install a setback thermostat to reduce heating and cooling
costs. Turning down the heat a few degrees and minimizing use of air
conditioning can save as much as 15% of the annual heating and cooling
bill. Sweaters and blankets are cheaper than gas and
electricity. Weatherstripping the doors and windows and adding
insulation to the attic can save money and make your home more
comfortable. Turn down the thermostat on your hot water heater and
insulate it. (Ask your local utilities if they offer a free home
energy audit program.)
- Replace incandescent light bulbs with compact fluorescent
bulbs. Turn off your computer and monitor when not in use to save about
$100 per year. Use the Power Options control panel to automatically
turn off the monitor after 15 minutes.
- Unplug A/C adapters that aren't in use (or plug them
into a multiple outlet strip and turn that off). Many adapters
continue to draw current even when not connected to a device.
- If home values have decreased because of the
economy, appeal your home's appraisal to get a reduction on your
- Finances and Insurance
- Pay off and cut up your credit cards, instead of carrying a
balance. If you carry a balance, you are living beyond your means. Pay off the credit card
bill in full at the end of the month to save on interest. Reducing your high
interest debt will put more money in your pocket, instead of the
bank's. Target the most expensive debt (highest interest rate) for
elimination first. Paying all your debt installments on time can
cut your financing costs by improving your credit score, as some
interest rates are based on your FICO score.
- Use cash to pay for your purchases. Using a credit card
feels the same whether you're spending $5 or $500. The psychological
weight of pulling more money from your wallet may make you hesitate a
bit before wasteful spending. It can also help if you change small
bills into bigger bills, since you're less likely to break a $20 or
$50 bill for an impulse purchase.
- Shop around for a free checking account with no ATM
and debit card fees. Often direct depositing your paycheck can yield a
- Pay your credit card bills electronically via the
card issuer's web site. This not only saves on postage, but can help
avoid late payment fees.
- Refinance a high interest home mortgage at a lower fixed rate, to
save on your monthly mortgage payments. If you've built up 20% equity
in your home, ask your lender about eliminating the Private Mortgage
- Cut insurance costs by increasing the deductible on
your insurance policies and installing dead-bolt locks on your doors.
- Check whether your auto insurance policy and credit
card issuer whether they cover rental cars. If they do, turn down the
rental car company insurance the next time you rent a car.
- Reduce your charitable contributions. Although helping others is
important, it is also important to address your own needs first.
- For "pure" life insurance, get a term life insurance
policy. Cash value policies like whole life are often an ineffective
- Homeowner insurance should be based on replacement
cost (e.g., cost to rebuild the home). Many insurers automatically
adjust the insurance coverage for inflation. If it's been several
years since you got the insurance policy, ask the insurer to
reevaluate the coverage to ensure that you have the right amount of
- Pay yourself first. Set up an automatic transfer of
at least 10% of your paycheck from your checking account to a savings
account. If the money isn't in your checking account, you are less
likely to spend it.
- Drop all of your spare change in a jar or tin can
(or piggy bank) at the end of each day, and periodically deposit the
funds in a savings account. Keep the spare change jar on your dresser.
- Eat before doing your grocery shopping. You buy more
when you're hungry, leading to wasted food. Also do your grocery
shopping less frequently, reducing the opportunities for impulse
buys. Using a shopping list can also help avoid impulse buys. Use
coupons when you shop. Buy non-perishable items in bulk when they are
- Ask your pharmacist about lower cost generic
drugs. Also consider lower cost mail order pharmacies.
- Shop around for major expenses, such as home repairs, car and
homeowner's insurance, long distance telephone service and
mortgages. Check the Consumer Reports ratings. Wait until the item
goes on sale before you buy.
- Establish a mandatory two-day waiting period before
making any major purchases to help avoid impulse buys.
- Buy used but quality products at garage sales and
online. Use web search engines to comparison shop on major
purchases. Buy sensible clothes instead of the popular brand names
that are continually going out of style.
- Buy used textbooks at half price and sell them back
to the bookstore at the end of the semester.
- Work weekends not only to earn extra money, but to
have less time available for shopping.
- When you are about to purchase a major appliance in
a store, ask for a 10% discount. Most store managers have the
authority to give a discount of up to 10% on a major purchase.
- Reduce spending on the lottery or other forms of gambling.
- Giving up coffee, tobacco, alcohol, candy and soda can save
thousands of dollars per year, and also improve your health.