If this question is killing you, listen up—we tapped three top financial aid pros for the answers you need. 

By Leslie Pepper
Illustration by Julie Houts

What kinds of loans are available to pay for college?

The Direct Subsidized Loan (sometimes known as a Stafford Loan) allows students to borrow up to $5,500 their freshman year, $6,500 their sophomore year and $7,500 each their junior and senior years. If a student qualifies based on financial need, part of the loan can be subsidized, meaning that the U.S. Department of Education pays any interest that accrues while the student is in school and for the six-month postgraduation grace period. The Direct PLUS Loan for parents allows them to borrow up to the college’s cost of attendance minus any other financial aid received. Almost everyone qualifies for these two loans, and fixed interest rates for 2018-19 are 5% and 7.6%, respectively. Private loans, offered by banks and other financial institutions, have both fixed and variable interest rates. Eligibility and interest rates depend on your credit score. 

Is sending our kid to a public state school our only option if we can’t afford private tuition?

That’s a common misconception among parents. Depending on your financial circumstances, a private school might be as affordable as (or even more so than!) a public one. How can that be? Because public schools typically don’t have much institutional need-based financial aid to award—they mostly just certify your eligibility to tap into other money available, such as federal loans and state aid. Private schools may have good endowments (basically pools of donated money that have been invested over time to provide income to the school) that help them offer more attractive financial aid packages and scholarships that bring the overall cost down. 

Would it be smart to have my kid declare herself legally independent, so she can qualify for more federal aid?

It’s actually quite difficult to qualify as an independent student for financial aid purposes. Unless your child meets very specific criteria, such as she has a legal dependent other than a spouse or child or is a veteran or ward of the court, you as a parent will have to furnish your information on the financial aid forms. 

I’ve heard that applying for financial aid is a nightmare. Where do we even start?

Take a deep breath and start with the Free Application for Federal Student Aid (FAFSA), because many states and colleges use the same information to determine eligibility for state and school aid. You’ll need federal income tax returns, W-2s, bank statements and any other records of money earned or accounts in your name. In addition to the FAFSA, many institutions use another (significantly more detailed) form called the CSS Profile to determine eligibility in making their own (nonfederal) institutional aid offers. There’s a small fee to fill it out, but families below a certain income threshold may qualify for a waiver. Also be aware that certain schools may have their own financial aid form.

If my teen is awarded an outside scholarship, will that lower the amount of financial aid she gets?

That depends on the school’s policy. By definition, an outside scholarship is money from a source that isn’t the government or the school. The majority (80%) of schools apply outside scholarships to unmet need first, then loans, which is favorable. The remaining schools will reduce their grants first.

Should we tap our home equity line of credit (HELOC) to pay for college?

It’s a risky move and generally ill-advised for many reasons. If you default on a HELOC, you could lose your house. If you default on a student loan, well, at least the bank can’t repossess your education. And a HELOC is a variable rate loan, so while the interest rate may be low now, theoretically it could rise in the future and make the loan harder to pay back. Finally, with the Tax Cuts and Jobs Act of 2017, the interest on some home equity loans is no longer tax-deductible.

We’ve managed to sock away money for college, but we also have quite a bit of credit card debt. Should we put those savings toward paying down our card balance to show less money in the bank, so we can qualify for more aid?

It’s almost always good to pay down a credit card because it’s an expensive form of debt. The asset reduction needs to occur before the FAFSA is submitted. Plus, yes, less money in the bank can improve your eligibility for financial aid.

Can my daughter apply for a loan completely on her own, having nothing to do with me? 

Most federal student loans do not require the student to have a cosigner or a good credit history. However, many private student loans for undergrads require a creditworthy cosigner.

How do schools calculate the dollar amount that a family is expected to put toward their college costs? And if the number is completely out of whack with what we are able to cover, do we have any real recourse?

Individual schools don’t actually calculate the amount you’ll be tapped to chip in, called your Expected Family Contribution (EFC)—that figure is calculated after you’ve completed the FAFSA, based on a complicated formula established by Congress. There’s rarely a way to change that number. However, before you panic, bear in mind that you won’t truly know what you’d pay for any given college until after you’ve officially applied for financial aid and received an aid award notice. The EFC is only one piece of that puzzle.

Based on all I’ve heard, I highly doubt we’ll qualify for any financial aid. Should we fill out the forms anyway?

Absolutely! First of all, you’ll never know if you qualify until you submit the necessary forms. Second, you can get federal loans only if you submit the FAFSA. Third, many states and colleges need the FAFSA in order for your child to receive aid and scholarships for academic, artistic or athletic accomplishments. Go on, fill out the forms.

Illustration by Julie Houts

What’s a net price calculator, and is it accurate? 

It’s an online tool to help determine the approximate cost for your child to attend a particular school, after taking grants and scholarships into account. Every college and university has one—some are more robust than others. Many ask about standardized test scores and class rank, which gives you an even better picture of the school’s cost. Generally, the more detailed the questions, the more accurate the approximated cost

of attendance will be.

My kid starts college soon. Any point in opening up a 529 plan? 

Yes, there is. Many states offer tax benefits for the contributions, and as long as you withdraw for qualified higher education expenses—including graduate and professional programs—earnings are not subject to federal income tax and, in many cases, state income tax. A win-win.

Does applying for financial aid hurt my kid’s chance of being accepted by his dream school?

It shouldn’t. Many admissions departments operate on a “need-blind” basis, which means they don’t consider finances when deciding whether or not to admit the student. That’s the good news. The potentially not-so-good news: Not every school that offers your child a spot will be able to come up with an aid package that makes attending the school a realistic option if you have a lot of need, especially if you’re actively looking to minimize reliance on loans. Keep that in mind if such a scenario would lead to a lot of heartbreak in your house.

What if my kid’s first-choice school doesn’t offer us enough financial aid?

Ideally the school is committed to meeting all of a student’s demonstrated need, so start with a phone call to the financial aid office. Ask to speak with someone who can go over your award letter with you in detail and explain the procedure for an appeal. In most cases a financial aid officer can tack on some type of loan that wasn’t included in the initial package. If you’ve received higher aid offers from similar-caliber schools, you may be able to leverage them for a better package from the first-choice school by (very politely!) asking if there’s anything they can do to increase the amount of their award. If your family’s circumstances have changed for the worse since your FAFSA filing, provide supporting documentation that includes dollar amounts to prove the downturn. Above all, be honest. If the financial aid officer thinks you’re looking to put one over on her, she’s less likely to try to help you out. And it bears repeating: Be polite!

Meet Our Experts

Phil Asbury, university director of financial aid at Northwestern University in Evanston, IL

Kalman Chany, president of Campus Consultants and author of Paying for College

Mark Kantrowitz, publisher of savingforcollege.com

Sponsored by AARP

Jean Setzfand, SVP of AARP Programs and an advocate for planning ahead for financial peace of mind in retirement, talks about retirement savings and student loans.

My generous, always-trying-to-be-helpful parents are offering to withdraw cash from their retirement money to help cover my daughter’s college costs. Should I let them?

No! Please implore your mom and dad not to hit their 401(k) or other retirement assets for this purpose. Instead, encourage grandparents to open or contribute to a 529 college savings plan with non-retirement assets if they are able. A 529 allows the money to grow tax-free until it is used for qualified educational purposes.

Student loans are going to be a necessity. What are the options with regard to cosigning or helping our son borrow money in his own name?

Think long and hard about cosigning a loan, even if doing so lowers your teen’s interest rate. It may feel like your parental duty, but if circumstances change and your teen defaults on the loan and you file for bankruptcy, you could still get stuck with the monthly payment on this debt. If your son borrows in his own name only, federal government–sponsored financial aid will likely be the best deal for him. 

Should I help pay for college if it means I can’t save for my own retirement while my daughter is in school? I can’t do both. 

If it’s a choice between the two, saving for retirement is more important. Tempting as it is to cover your kid’s costs, you shouldn’t jeopardize your own retirement independence. Instead, help her fill out the FAFSA, search for scholarships and grants, encourage her to work part-time and help research majors that lead to higher-paying jobs. In other words, guide her toward long-term financial independence without risking yours.