How Rich Kids Get College Aid

by Lynn O’Shaughnessy | Mar 16, 2009 | Comments

Key Stats

• Rising aid: In a recent eight-year period, financial aid at state flagship universities jumped 406 percent for families with incomes exceeding $100,000.
• Falling aid: During the same time, aid to the poorest students attending flagships dropped 13 percent.
• Private vs. public: Private colleges are devoting roughly 32 percent of their in-house grants to affluent students. Public universities are funneling nearly 60 percent of their institutional grants to students without need.

If your family pulls in more than about $150,000 annually and the crash has left you with a few dollars saved, you probably assume that colleges will stiff your teenager when they hand out financial aid. It’s a common assumption, but it’s wrong. A surprising number of colleges — public and private — have absolutely no problem throwing money at students who, at least on paper, can afford to underwrite the cost of a bachelor’s degree. In fact, schools have been devoting a growing mountain of financial aid dollars to families like yours. You’ll increase your chances of cutting the price of college if you understand why schools are luring affluent students with price breaks. Equally important, you’ll want to know which institutions have balked at this largesse and are making the kids pay full freight.

How the Aid Game Changed

In the old days, most colleges limited their financial aid to truly needy students. The exceptions to the rule: brainiacs aiming for National Merit honors and jocks competing for athletic scholarships. But in the early 1990s, this tradition began unraveling when the higher-ed world experienced a temporary slump in college-age students. Many schools began luring students from higher-income families by offering them merit awards or tuition discounts.

Even when the adolescent drought ended, however, schools showed no appetite for ditching awards earmarked for smart, affluent students with impressive credentials. What was largely a private-college effort has spread to flagship and regional state universities. The tuition discounts are often sizable. The average price break at private schools today, according to the College Board, is 33.5 percent. The typical discount at public schools is nearly 15 percent.

Fear is a prime motivator for these merit carrots. Many schools are terrified of the annual U.S. News & World Report college rankings. Schools that enjoy top rankings often worry about slipping, while those with mediocre numbers are frequently fixated on moving up. The scores matter because many families, particularly those interested in highly selective schools, regard these rankings as the college bible. One way schools can capture higher rankings is to lure the most desirable kids — those with impressive GPAs and SAT scores. Often, these desirable kids come from wealthier families, and they can attract those kids by offering discounts.

Getting Aid from Public Colleges

Cash-strapped state schools hope price breaks will lure smart out-of-state students who will pay higher tuition — even with a discount — than residents must pay. Cross-border poaching has broken out as state schools scramble to fill slots. The University of Toledo in Ohio, for instance, is aggressively reaching out to students from nearby Michigan by offering discounts of $9,000 to $12,000 to applicants with GPAs as low as 3.0. In two years, the number of out-of-state students attending the Ohio school jumped from 100 to 300.

Not all public schools are as up-front as the University of Toledo, but the handouts are happening. The head of the nonprofit Education Trust recently told me that the child of one of her staff members, who lives in Maryland, got a great offer from the University of Texas. Another family, in Cambridge, Mass., said their daughter also received a wonderful package from the University of Texas.

So if you’re the parent of a strong candidate who would like to attend a flagship or other public college outside your state, contact the school’s financial aid office and ask about its merit-aid policies. You may be in for a pleasant surprise.

Which Private Colleges May Help You

Many private colleges — though not Ivy League schools — are eager to give merit awards to kids like yours. Schools offer these discounts to compete against the most elite schools. Be sure to scrutinize the financial aid section of these colleges’ Web sites to learn their merit-aid policies. And don’t be shy about calling their aid offices to see what type of aid your child might get.

The Ivies and a couple of dozen other elite schools don’t play this game. They pride themselves on being need-blind (they accept students without regard to family income). Wealthy families pay the full tab at a school like Princeton University and the lack of discounts hasn’t reduced their interest, since the Ivies continue to serve primarily as watering holes for affluent students. Only 8 percent or so of students at Harvard and Princeton, for example, qualify for Pell grants, which are reserved for needy families. In contrast, 38 percent of students at the University of California at Los Angeles, a state school, get Pell grants.

Because there’s nothing you can do to extract merit aid from Ivy League colleges, your best bet is to have your child apply for merit scholarships outside the institution. The Web site Fastweb.com is a good place to start the hunt.

The Bottom Line

If your child has the sort of grades, test scores, and other virtues that raise the tone of an incoming freshman class, all but the most elite schools are going to love talking to him or her. Yes, the Ivies can get all the 4.0 and top 10 percent students they want without offering discounts to anyone who doesn’t need the money. But as long as your sights aren’t aimed strictly at the top tier, you’ll likely find that your child’s eligibility for financial aid is less about your financial need and more about the institution’s desire for reputation. Hey, colleges have needs, too.