Why Should You Care About Student Debt?

The New York Times kicked off its series “Degrees of Debt” with an article entitled A Generation Hobbled by the Soaring Cost of College. This article touches on how the cost of college has skyrocketed and how that increasing cost has and will affect the current generation of students.  This is a very timely piece with the state of the currentUS economy and the impending debate on student loan rates on Capitol Hill.

I’ve discussed this issue with my friends over the past week and have heard repeatedly- ‘why should I care?  I’m not in college.’  My response (much to the chagrin of my father) is in the form of a question- why would you not care?  If only because one day your children will want to go to college and their tuition bill will follow, but more so because of the lasting affects this will have on the American economy.  In the article Rajeeve V. Date, deputy director of the Consumer Financial Protection Bureau, draws likeness to the predatory lending norms associated with the current housing crisis- and we have all felt the lasting effects of allowing that crisis to continue on too long.

But could this be worse? An entire generation is graduating from college with a student loan payment that is double (or triple) the amount of an average mortgage payment. These students should be coming out of college, finding jobs, buying new cars, traveling the country, getting married and buying houses (they are our economic stimulus package!).  But instead, they are living with their parents, taking on whatever job they can find to make ends meet and putting every cent they have into paying off their debt to keep from defaulting on a loan that was taken out so they could better their lives through education.  Ironic, right?

So what is the answer?  Not go to college? Increase taxes to fund higher education?  Very few would agree that those are good answers.  My answer is proper planning.  Choosing the right college and knowing how you are going to pay for it BEFORE your tuition bill comes.  One could argue that proper financial planning for college should start at the moment a woman finds out she will become a mother, but we live in the real world and life often gets in the way of funding a college savings plan. Most parents don’t start planning for college until their student starts seriously talking about going college (sometime around their sophomore year of high school), and that’s OK.  Just make sure that you have a plan; this will help you avoid the last minute panic of taking out too much in student loans.

Let’s face it, student loans are a reality. Most students are going to need to take out some amount in loans to pay for college, but there is no acceptable reason that a student should be surprised by a $900/month student loan payment after graduation.  Proper planning for college is about knowing what to expect.  If you’re wondering what to expect in the coming years- sign up for a free consultation with one of our College Planning Advisors or submit a question.  We’ve been there and we are here to help.


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Part I: Creativity, Innovation And Education

Creativity is the foundation of innovation, but are kids in our American education system being encouraged to create, and innovate; letting their right brains make the connections that spark creativity and innovation? Unfortunately, the answer is no.

This two-part series focuses on Creativity, Innovation and Education and will explore how students learn and how to stimulate creativity and innovation which are so critical in the knowledge society that we live in today.

The following is an excerpt from a blog post by Erica Swallow, a contributor to Forbes.com. Her post is based on an interview with Harvard Innovation Education Fellow , Tom Wagner, and his research.

Over two years of research involving interviews with executives, college teachers, community leaders, and recent graduates, Wagner defined the skills needed for Americans to stay competitive in an increasingly globalized workforce. As lined out in his book, “The Global Achievement Gap,” that set of core competencies that every student must master before the end of high school is:

– Critical thinking and problem solving (the ability to ask the right questions)
– Collaboration across networks and leading by influence
– Agility and adaptability
– Initiative and entrepreneurialism
– Accessing and analyzing information
– Effective written and oral communication
– Curiosity and imagination

For his latest book, “Creating Innovators: The Making of Young People Who Will Change The World,” Wagner has extended his studies to address the problem of how we teach students these skills. He has come to the conclusion that our country’s economic problems are based in its education system.
In an effort to discern teaching and parenting patterns, Wagner interviewed innovators in their 20s, followed by interviews with their parents and the influential teachers and mentors in the students’ lives. He found stunning similarities between the teaching styles and goals he encountered with these influential teachers at all levels of education and concludes, “The culture of schooling as we all know it is radically at odds with the culture of learning that produces innovators.” He identified five ways in which America’s education system is stunting innovation:

1. Individual achievement is the focus: Students spend a bulk of their time focusing on improving their GPAs — school is a competition among peers. “But innovation is a team sport,” says Wagner. “Yes, it requires some solitude and reflection, but fundamentally problems are too complexto innovate or solve by ones self.”

2. Specialization is celebrated and rewarded: High school curriculum is structured using Carnegie units, a system that is 125 years old, says Wagner. He says the director of talent at Google once told him, “If there’s one thing that educators need to understand, it’s that you can neither understand nor solve problems within the context and bright lines of subject content.” Wagner declares, “Learning to be an innovator is about learning to cross disciplinary boundaries and exploring problems and their solutions from multiple perspectives.”

3. Risk aversion is the norm: “We penalize mistakes,” says Wagner. “The whole challenge in schooling is to figure out what the teacher wants. And the teachers have to figure out what the superintendent wants or the state wants. It’s a compliance-driven, risk-averse culture.” Innovation, on the other hand, is grounded in taking risks and learning via trial and error. Educators could take a note from design firm IDEO with its mantra of “Fail early, fail often,” says Wagner. And at Stanford’s Institute of Design, he says they are considering ideas like, “We’re thinking F is the new A.” Without failure, there is no innovation.

4. Learning is profoundly passive: For 12 to 16 years, we learn to consume information while in school, says Wagner. He suspects that our schooling culture has actually turned us into the “good little consumers” that we are. Innovative learning cultures teach about creating, not consuming, he says.

5. Extrinsic incentives drive learning: “Carrots and sticks, As and Fs,” Wagner remarks. Young innovators are intrinsically motivated, he says. They aren’t interested in grading scales and petty reward systems. Parents and teachers can encourage innovative thinking by nurturing the curiosity and inquisitiveness of young people, Wagner says. As he describes it, it’s a pattern of “play to passion to purpose.” Parents of innovators encouraged their children to play in more exploratory ways, he says. “Fewer toys, more toys without batteries, more unstructured time in their day.” Those children grow up to find passions, not just academic achievement, he says. “And that passion matures to a profound sense of purpose.  Every young person I interviewed wants to make a difference in the world, put a ding in the universe.”

“”We have to transition to an innovation-driven culture, an innovation-driven society,” says Wagner. “A consumer society is bankrupt — it’s not coming back.  To do that, we’re going to have to work with young people — as parents, as teachers, as mentors, and as employers — in very different ways.  They want to, you want to become innovators.  And we as a country need the capacity to solve many different kinds of problems in multiple ways.  It requires us to have a very different vision of education, of teaching and learning for the 21st century.  It requires us to have a sense of urgency about the problem that needs to be solved.”


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College Pricing Tips

Satellite or Mother Ship? The vast majority of state-owned university systems have one “main campus” and several “satellite” campuses located throughout the state.  The cost of attending one of the satellite campuses is usually less than attending the main campus, even though the name on the diploma at graduation will be the same. For example, you can attend the Penn State Altoona campus for about $1,500 less per year than you would pay at the University Park campus.

College of Charleston or Stanford? ($20,000 Degrees of Separation) These colleges could fall in the famous category, but the point here is that one is a lower cost state school and the other a higher priced private school. For some common types of degrees – education, nursing and biology, for example – it might not “pay” to go to a private school that is $20,000 more per year when you might be able to get an equivalent education at a less costly college. Of course, this is no reflection on Stanford or the value inherent in a Stanford education.

The No Shame Game: There is no shame in attending a local community college for the first few years of college to complete the majority of the general education classes that most four-year colleges require.


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Estimating College Aid Eligibility Part II

Cost of Attendance:
Cost of attendance is obviously one of the two variables needed to determine need-based aid eligibility.  Cost of attendance is the total cost of enrolling at a college, including tuition, fees, room & board, books, travel and personal expenses. So if you know the cost of a specific college you can subtract your child’s EFC from that cost to determine if your child is eligible for need-based financial aid at that college. If you don’t know the cost of a specific college, you can use the 2011-2012 national average costs for a 2 year public college ($16,000), a 4 year public college ($20,000), a 4 year private college ($42,000) or 4 year elite college (the most selective and most expensive colleges nationwide, at $56,000 per year), to get a general idea of your child’s aid eligibility.

Example 1: Your Child Qualifies for Need-Based Financial Aid For example, if your income is $70,000 and you have two dependent children, your EFC based on that income alone is about $7,385 which means that based on this income only estimated EFC (your actual EFC may be higher), your child should qualify for need-based financial aid at all three types of colleges. As a result, your child is eligible to receive need-based grants, scholarships, work study and student loans as part of the child’s financial aid package. Eligibility does not mean certainty however. You will have to wait to see what form of aid the child gets and how much it is worth.

Example 2: Your child doesn’t qualify for need-based financial aid on the other hand, if your income is $250,000 and you have one dependent child, then your EFC is $64,371, which means that your child won’t likely qualify for need-based aid at any of the four types of schools used (Two-year public, four-year public, four-year private and fouryear elite private colleges).  But, that doesn’t mean that you have to pay $64,371 per year because the “sticker prices” are less than that. You will never pay more than the cost of attendance.  Keep in mind too that the costs used to create the table are national average costs for these types of colleges and that the cost of attendance of a specific college will be different than the national average.  The Ivy League colleges and most of the elite private colleges are as much $56,000 annually, but the 2011-2012 national average cost for 4 year private colleges is $42,000.

Merit Aid
Merit aid is another form of student aid that is based on the student’s academic, athletic, music and other merits, not family finances. Therefore, any student can receive merit aid.  The best things about merit aid are 1) merit awards are typically grants, scholarships or tuition discounts that don’t need to be repaid, unlike student loans and 2) students can be awarded merit aid regardless of the family’s overall income or how much the family has saved for college.

Academic merit aid is typically based on the student’s grade point average (GPA) and standardized test scores (SAT and ACT), and occasionally on class rank. It is pretty black and white; if you have the grades – you get the aid.  Student Gets Merit Aid But No Need-Based Aid if your child doesn’t qualify for need based financial aid, but is awarded merit
aid, then your out-of-pocket cost will be the sticker price minus the merit aid award. For example, if the college costs $35,000 per year and your EFC is $40,000 per year, you will be expected to pay the “sticker price” of $35,000 per year minus your child’s $10,000 merit aid award, for an out-of-pocket cost of $25,000 per year.

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Estimating College Aid Eligibility Part 1

The process of applying for need-based financial aid for college begins by students and parents completing one or two financial aid forms, the FAFSA (Free Application for Federal Student Aid) and/or the CSS Profile. Any college or university that awards federal student aid must require that students complete the FAFSA in order to determine eligibility for federal aid (it works for most state aid too). Most colleges and universities nationwide use the FAFSA as their sole application for need-based financial aid, so students applying for aid at those colleges only need to complete the FAFSA.

However, there are about 300 colleges which require that the CSS Profile also be completed in addition to the FAFSA. Those colleges use the CSS profile to assess the student’s eligibility for the college’s own institutional aid dollars. Typically, “Profile” colleges are very selective private colleges, including the Ivies, but the University of Michigan at Ann Arbor and the University of North Carolina at Chapel Hill are examples of flagship state universities that also require the Profile.

Calculating the Family’s Expected Contribution (EFC)
Regardless of the aid form (s) the student is required to complete and submit as part of the process of applying for financial aid, and after all of the time and information it takes to complete the form (s), it all boils down to three letters, EFC.

You provide your financial information on the aid forms (FAFSA and CSS Profile), submit the forms online to the processing centers for each respective form, and the information from the forms goes into the aid calculations (the Federal Methodology and the Institutional Methodology). The output of those need analysis calculations is the student’s expected family contribution (EFC) toward the cost of college. The student’s EFC is the minimum amount the student is expected to contribute toward the cost of college. Thus, EFC represents a dollar amount. It is the “output” of the aid forms and calculations.

Both of the EFC formulas focus primarily on the assets and income of the parents and student, family size and the number of dependent children enrolled in college in a given year to assess the family’s ability to pay for college using the income and assets that they have. And because the two formulas calculate EFC differently, it’s likely that the student’s EFC under each formula will also be different.

Using a Student’s EFC to Determine the Need for Financial Aid
EFC is used to analyze a students’ need for financial aid using a simple formula that subtracts the student’s expected family contribution (EFC) from a college’s total cost of attendance (Cost of Attendance – EFC = Financial Need). If a student’s EFC is less than a college’s cost of attendance, then the student qualifies for need-based financial aid.


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Unemployment Rates of College Majors

The big question: Can I get a job when I get out of college, has been answered by a new study from the Center on Education and the Workforce at Georgetown University.

The study, Hard Times: Not All College Majors Are Created Equal, was published in January of 2012, and offers valuable insight into the employment and earnings potential of various college majors.

The table above provides the unemployment rate and average earnings of recent college graduates in several categories of study, but the report also breaks each of these categories into more specific majors. “The risk of unemployment among recent college graduates depends on their major. The unemployment rate for recent graduates is highest in Architecture (13.9 percent) because of the collapse of the construction and home building industry in the recession. Unemploymentrates are generally higher in non-technical majors, such as the Arts (11.1 percent), Humanities and Liberal Arts (9.4 percent), Social Science (8.9 percent)1 and Law and Public Policy (8.1 percent). “

Technical majors are experiencing good employment and good initial earnings, but both vary depending on the specific area of the major.  “Unemployment in majors related to computers and mathematics vary widely depending on the technical and scientific content of the major.

Employers are still hiring technical computer specialists who can write software and invent new applications. But for information specialists who use software to manipulate, mine, and disseminate information, hiring slows down in recessions. We can see the difference in unemployment between people who invent computer technology as opposed to people who use computer technology.

The unemployment rate for recent college graduates in Information Systems has spiked to 11.7 percent, while the rates for majors in Computer Science and Mathematics are 7.8 percent and 6.0 percent, respectively. “

“Majors that are more closely aligned with particular occupations and industries tend to experience lower unemployment rates. Majors such as Healthcare, education and those related to technical occupations tend to have lower unemployment rates than more general majors, like Humanities and Liberal Arts, where graduates are broadly dispersed across occupations and industries.  Unemployment rates for recent graduates in Healthcare and Education are 5.4 percent compared to 9.4 percent for
people who majored in Humanities and the LiberalArts.”

Researchers Carnevale, Cheah and Strohl have decades of high level expertise in education, the economy and the workforce. This study is not only helpful and insightful, but it addresses the big question that has been widely debated in the media in recent years as the economy weakened, college costs have risen and jobs have become more difficult to get. “The question, as we slowly
dig out from under the wreckage left by the Great Recession, is unavoidable: “Is college worth it?” Our answer: “Yes, extensive research, ours included, finds that a college degree is still worth it.” A Bachelor’s degree is one of the best weapons a job seeker can wield in the fight for employment and earnings. And staying on campus to earn a graduate degree provides safe shelter
from the immediate economic storm, and will pay off with greater employability and earnings once the graduate enters the labor market. “

“Although differences remain high among majors, graduate education raises earnings across the board. The average earnings for BA’s now stands at $48,000 compared with $62,000 for graduate degrees. With the exception the Arts and Education, earnings for graduate workers range between $60,000 and $100,000.  It is easy to look at unemployment rates for new college graduates or hear stories about degree-holders forced to tend bar and question the wisdom of investing in higher education when times are
bad. But those questions should last only until you compare how job seekers with college degrees are doing compared to those with out college degrees.

Today’s best advice, then, is that high school students who can go on to college should do so with one caveat. They should do their homework before picking a major because, when it comes to employment prospects and compensation, not all college degrees are created equal.”


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How to Teach your Children about Money

It’s never too early to start teaching your kids the right and wrong ways to manage money.  When I was a kid, my parents afforded me a small allowance that grew each year, granted there were associated chores that had to be finished in order to receive my allowance.  These days, I hear more and more stories about parents that hand out money like it does grow on trees.  How do you think these kids will fend when they grow up and are forced to manage their finances with the idea that money isn’t earned?  Or that money doesn’t have to be saved?  It’s important to instill knowledge and properly prepare your children early on in life in order to lead them down the path of financial success.  Let’s discuss the major ways in which you can influence your child – even at a very young age – to properly manage money.

The first tip isn’t what about your children should do, it’s about what YOU should.  How will your children ever learn the do’s and don’ts of proper money management if you as a parent don’t understand them?  Lesson #1 is being a positive and influential money role model for your children.  Take advantage of everyday activities to talk and teach your kids about what you’re doing with your money and why it’s important.  Think of a trip to the grocery store as an opportunity to explain price comparison and value.  Opening bills can be a great opportunity to talk about borrowing, earning, sharing and debt.  Use every opportunity possible to spark up conversations that your kids will understand and learn from.

The second tip to cover is teaching your kids about earning their money.  Remember how I said I used to have an allowance?  Well I still do – it’s call an income.  Looking back, I never realized at the time how valuable my chores and allowance were at showing me that I had to work for my money.  But, those values stuck, and I’ve always felt a strong passion for earning what I have.  Start an allowance early and build from there.  Create a budget together – list all of their expenses and how they’re going to afford them.  Opening a checking or savings account can teach them about fees, account maintenance, and even interest.  If you’re struggling with your kids going to school and unable to work, make sure you teach them about loans and debt.

I know, I know, trying to teach a five year old about a retirement plan is sure to be a failure, so start small.  Teach them about savings first.  Do they have a new toy in mind that they’d like to buy?  Make them save up to buy it and teach them the value of saving and spending.  Once they get a little older, start explaining the importance of investments and how retirement works.  Teach them the basics of investing and start with small ventures like broad-based index funds and IRAs.  Have them do some research and find out about the different ratings and performance levels of specific investments.  Giving them a solid knowledge foundation to work from is better than throwing them to the wolves when they’re forced to start saving for the future.

Finally, what shouldn’t you do when it comes to teaching your kids about money?  The best tip I’ve ever heard is to have patience – you know how kids can be, don’t force them to take your advice.  As we all know, sometimes learning from our mistakes can be the best form of learning.  With that said, don’t be a lifeline for them to always fall back on.  They’ll never learn from their mistakes if you constantly help them in recovering.  Instead, help them strategize how to get out of their mistakes and what to do in the future.  It’s important for your children to make their own decisions, especially when it comes to their finances.  Your job isn’t to set goals for them, it’s to give them the knowledge, education and preparation necessary for them to be able to make their own calculated goals and assessments – something I’ll always value that my folks gave me.

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Should You Put Your Kids’ Education ahead of Your Retirement?

If you’re like most parents, you want nothing more than to provide your children with a college education. Some have been saving since before their children were even born, but more often than not, a substantial number of parents find themselves in the uncomfortable position where their kids are fast approaching college age, but they themselves are staring their retirement years right in the face. So the question becomes: Should you sacrifice your retirement savings to put your kids through school?

During a conversation about this precise question, a wise insurance professional reminded us that while college-bound kids can always get financial aid, there is no such thing as “retirement aid.” And while it’s a nice wish, paying for a child’s education is not an obligation; and it’s certainly not worth taking out a second mortgage, cashing in a life insurance policy, or tapping into your IRA. Those funds can never be replaced, but your children will earn their own money. I can personally attest to this fact. My parents worked hard their whole lives, but simply couldn’t afford to contribute to my college education. While I could see that this pained them, I knew I could take care of myself. I reminded them that I would far prefer that they enjoy the fruits of their labors and live out their golden years without financial or emotional strain. So, I took out copious student loans to attend a private university where I pursued a double major, made the Dean’s list, and graduated with Honors — all while working 40 hours a week behind a bar, serving drinks to my more affluent classmates. I’m still paying those loans, but I’ll never regret the education I received — an education I earned myself.

While at university, I also noticed a powerful trend among my classmates, the majority of whom had their parents paying their way, and even supplementing their lifestyles with allowances and cars. These kids were no less intelligent than I, yet despite my over-burdened schedule, I was earning As while they were struggling to maintain a C average. It occurred to me that one of the reasons I felt so compelled to achieve was that it was my own money — money I was not about to go to waste. My education simply meant more to me, and my friends who were living off handouts were far less appreciative of their good fortune than I — and probably their parents — would ever have expected.

Anecdotes aside, the easy answer to this dilemma is to take care of yourself before you raid your retirement accounts and assets to fund your children’s education. They’ll certainly survive — and perhaps even thrive — knowing it’s something they’ve earned. Armed with an education, they’ll enter the workforce and establish their own retirement funds. With lifespans steadily increasing, your retirement could conceivably last upwards of 30 years, so ensuring you have the funds to support a long retirement means you won’t become a “burden” to your children, relying on them for shelter, money or care. And if this were to happen, what was all your sacrifice for in the first place?

Keep your nest egg, encourage your children to achieve, and with a solid planning strategy and a bit of luck, you’ll lead a long, happy retirement — one that allows you to spend time doing what you love with those you love, like those grandchildren you’re probably looking forward to spoiling!


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College is a Big Investment

College is expensive and the price keeps going up. The national average cost of attending a four-year public college is over $20,000 per year, and the average cost of attending a four-year private college is now over $42,000. Even the average cost of attending a two-year public college has nearly reached $15,000 per year.

And those are today’s prices. The table to the right projects those costs for future years assuming a 6% annual increase in the total cost of attendance.

Yes, college is a big investment, but fortunately there are strategies to reduce the cost of college and make it more affordable. However, understanding all of the strategies and determining which ones apply to your family’s situation can be quite confusing. College funding involves multiple areas of personal finance such as: taxes, investing, borrowing, cash flow and financial aid. Consequently, college funding requires knowledge of all of these areas and, more importantly, how they affect one another for education funding purposes. For example, when applying for need-based financial aid, you and your child need your tax information from the previous year. A change in your income, the sale of an investment or refinancing a home can all affect your taxes, which in turn can affect your child’s eligibility for need-based financial aid. College funding isn’t merely about financial aid; it’s about your financial life.

Regardless of whether your child qualifies for financial aid or not, your family still needs to figure out how to use your income and assets to come up with your share of the cost of college, an amount that will likely be different from one college to another. So, how are you going to pay for college? Will you rely on your income, assets, student loans and gifts from grandma?  If so, how will that all work?  Will you be eligible to claim one of the education tax benefits?  If so, which one will impact your child’s financial aid eligibility the least?  These kinds of big questions and the vast number of variables and possibilities can make the whole process overwhelming unless you have a knowledgeable advisor that can help eliminate the stress and complexity of it all, and determine what your Best Strategy is.

The basics of what you need to know about paying for college are summarized in the points below.

  • The out-of-pocket cost of college is a function of the sticker price (projected in the table above) of the college, and the total financial aid (need-based and merit) that the student receives to help pay for it


  • Need-based financial aid eligibility is based on the income and assets of the parents and the student.  However, not all assets are counted against the family. Retirement assets and home equity are not included in the federal financial aid formula.


  • It’s free to apply for federal student aid, and you should do it. You get a PIN on the federal aid website atwww.fafsa.ed.gov, and then your child picks some colleges that she wants the information sent to, you both (parent and child) complete the FAFSA (Free Application for Federal Student Aid) online and the aid processing center will crunch the numbers and arrive at an Expected Family Contribution (EFC) toward the cost of college. A Student Aid Report containing your EFC will be sent to you and to the colleges your child selected. Each school will then compare your EFC to their cost of attendance (COA), and if your EFC is lower than their cost of attendance then the child demonstrates a Need for financial aid.


  • If your child is eligible for need-based financial aid she may be awarded anything from grants and scholarships to student loans and work-study. Yes, loans and work-study are considered “aid.” If your childdoesn’t qualify for need-based aid she might still get merit aid for academic, musical, athletic or other achievements. So there are two types of financial aid: need-based is based on your family’s ability to “pay” and merit is based on your child’s ability to “play.”


  • Unfortunately, before you can pay the out-of-pocket cost of college you have to pay taxes on your income first. Fortunately there is one more form of aid that we haven’t discussed yet – tax aid. You may be able to claim one of the education tax credits (American opportunity Tax Credit, the Hope Tax Credit or the Lifetime Learning Tax Credit) or the tuition and fees deduction, each of which will reduce your federal tax bill if you qualify..


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What To Do If You Need More Financial Aid

Appealing a financial aid award is a common practice but has its challenges. Many parents need more aid than ever, and college endowments have yet to gain back their losses. Some colleges will respond to your request to review your student’s award letter. Reasons why they should do so: your finances have changed; you had unreimbursed employee business expenses, unusually high medical expenses, or your student was offered a much better offer at another college that is very similar to the one he or she really wants to go to.

However, if you ask for more money without documentation of your problems or other award offers, it is doubtful that the school will see it’s way clear to offering your student more money. In fact, when you ask for money and don’t get it, 90% of parents end up sending their student to that college anyway. And financial aid directors know this.

Even if the odds appear to be against you, if you feel that you honestly deserve more help, then ask. The worst thing that can happen is they say no.

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