5 Top Financial Aid Myths And What They Mean to You

Dolan Smart Money Move: It's a very bad idea to sell stock or property and put the money into a bank account in the year before you apply for aid. In the application process, the college will calculate your "expected family contribution" (EFC), which is determined by factoring in your income, including income from investments and other assets, minus your financial obligations. The college subtracts your EFC from the total costs of a typical year–factoring in tuition, living expenses, books, and room and board. Then they decide whether they want to help you with the difference.

3. "The school itself is the best source for information on aid."

We like Kal Chany's response to this myth: "That's like saying the IRS is the best place to go for advice on tax savings!" The financial aid officer, known as the FAO, works for the financial department, not for you. He or she is trying to get as much money from each student as possible. Meanwhile, you're trying to spend as little of your own money as possible.

Recent studies have found that as many as 65% of private colleges and 27% of public universities engage in what is known as financial aid leveraging. This is a process used to determine how little aid the school can award per student and still get the student to enroll.

How do schools get away with this practice? By simply not telling you the many ways that you can manipulate your assets to show need. Is that dishonest? We're not saying hide your assets in a Swiss bank account. We're saying take advantage of the strategies available to you. (For more details, see The Dolans' Guide to Qualifying for Financial Aid.)

And you don't have to accept the FAO's aid offer as final either - even if he or she tells you that federal regulations prevent the school from giving you any more. Chany tells us that, at least in some instances, such a statement is a bald-faced lie.

This is not to say that negotiating for more aid will get you what you want, but it's sure possible. You might have some clout if, say, you have a daughter who has been accepted at two schools with comparable academic standards and reputation, and School B has offered a larger financial aid package, but she really wants to attend School A. Then you can go to the FAO at School A and explain that your daughter would really prefer to accept their offer, but you just can't afford to turn down School B. It will help a lot if your daughter is a highly desirable student to School A. Excellent grades and achievements go a long way in giving you the upper hand.

4. "Financial aid goes to the students who need it most."

As much as we would like to believe that were the case, it's just not true. "Money goes to people who know how the system operates and how to answer the questions on the applications to their best advantage," says Chany. That's why we want you to be aware of these myths.

5. "Scholarships are where the real money is."

Everyone would love for their child get a scholarship, but you've got to look elsewhere. Scholarships represent less than 5% of all the available aid, says Chany. You might have heard that billions of dollars in scholarship monies go unused every year. He says these claims are out of date and based on tuition money that companies and nonprofits, including universities themselves, made available to their employees–not necessarily to 18- to 21-year-old undergraduates.

Now you know the truth about financial aid. For the next steps in the process, be sure to read The Dolans' Guide to Qualifying for Financial Aid.