College Financial Aid: Bait and Switch?

Warning: If you've got kids heading to college this fall, be aware that the financial aid they're offered as freshmen may dwindle in later years.

The following guest post comes from Irene Steinman, a good friend of Money Talks founder Stacy Johnson.

Here’s what colleges don’t tell students they’re wooing: They might offer excellent financial aid the first year, but the free money might slowly disappear as the student advances.

When my son was admitted to a top-tier university three years ago, his financial aid package made the sticker price of $55,000 affordable (barely) by effectively granting a 15-percent discount on the tuition through a university scholarship, as well as Federally Subsidized Work Study and loans. With all that help, the decision to enroll him in the prestigious university was a no-brainer.

But that was year one. As the years progressed, we’ve been dismayed to watch a lot of that aid disappear. After it was too late to turn back, we fell victim to a hidden catch: As students continue beyond the first year, some colleges adjust their packages, expecting them to bear a greater financial burden.

Below are three lessons I’ve learned from my trip to the school of hard knocks…

1. Merit-based scholarships may require stratospheric grades, possibly as high as a straight-A average. Earning lofty grades might have been easy in local high school classes, but students soon learn the effort behind a high school A might earn only a C in some college classes. Result? Some students can’t keep up and lose their aid after the first year. My neighbor lost her full ride at a private university by dropping to a B average in her second semester.

2. The “Expected Student Contribution” from summer jobs and work study increases yearly and is figured in the “Expected Family Contribution.” Through The Federal Work Study program, students are essentially allowed to earn money toward their tuition by working at subsidized campus jobs. Fine, if they have the time. But student athletes or performing arts majors have to practice hours each day. My son is on his school’s varsity baseball team – after practicing and travel, he’s lucky to be able to maintain his grades, much less work.

3. In succeeding years, students will be assigned a greater federal loan. Freshmen are eligible for subsidized and unsubsidized Stafford loans of $5,500 – sophomores can get $6,500, and juniors and seniors $7,500. As the amount of the loan rises, grants or need-based scholarships (the free money) decrease. In his junior-year financial aid package, my son’s grant was reduced by the $2,000 increase in his Stafford loan.

Worse yet, with dwindling resources and tight credit, some states are cutting aid to higher education, and the federal government is refusing to fund existing programs. State schools everywhere have been shocking their returning students with tuition and fee increases, and financial aid packages that are more loan than aid.

As of April 15, 2011, the federal government has eliminated funding for the popular Robert C. Byrd Honors Scholarship Program. Scholarships already awarded will not be paid, and no new awards will be granted. Current students expecting that money will have to make other plans.

There’s an appeals process. In our case, we were told that claiming hardship would get us a hearing with a financial aid officer, and providing additional information about income, job status, or dependents could increase our chances of additional help. But we were also told that the ever-increasing portion of the student burden couldn’t be altered.

So here’s a warning: If you’ve got a kid heading to college this year, they may one day find themselves in the same boat as my son. So before you sign on the dotted line, understand the conditions of your scholarship and/or aid, and always ask about future years. Consider the consequences if the A-plus aid you’re offered as a freshman earns an F as a senior.

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