Financial Aid Awards and the Joy of Shopping

March Madness is here! And we’re not just talking about basketball. The ides of March have brought with them a flurry of admissions decisions, envelopes both fat and thin, and financial aid award letters that have our students and their families buzzing. Students are primarily interested in the thickness of the envelope (Did I get in?), while parents are scrutinizing the widely variable aid packages (Can we afford this?). Some financial aid packages consist primarily of burdensome loans, while others are replete with merit-based scholarships and grants: free money which will help take the sting out of the cost of attendance. Every “good” financial aid award letter, heavy on the free money, is an invitation to the “tourney”, a chance to play the financial aid shopping game. Parents can take the good award letters on the road to determine how badly colleges and universities want their kids, and if they’re willing to dip into their coffers to get them. The game ends abruptly May 1st when financial decisions are set and deposits are due, so you shouldn’t delay if you plan on playing.

Setting up your bracket

In preparation for the tourney, parents must lay out their award letters by competitive bracket before they attempt to leverage more attractive offers. Colleges and universities hate to lose applicants to their strongest competitors or to schools even higher in the pecking order. When you ask a financial aid office to “reconsider” your aid package or come closer to matching a competing offer, the answer will frequently be impacted by whether you are presenting an award letter from a peer school. You’ll be hard-pressed to impress a financial aid officer from Rice University with a better offer from Sam Houston State University, but you may get her attention with a more generous offer from USC, or Tulane or Bowdoin.

Breaking through to a better offer: understanding the gatekeepers

Financial aid officers are the guardians of their institution’s fiscal resources, and they are strategic in their allocation of aid. If you want to play the game and attempt to influence them, you must understand their primary objectives. With their limited pool of financial resources, the financial aid officers must meet the primary needs of their institution as they structure their aid packages; among these institutional priorities are the needs to attract academically strong students, recruit athletes to field winning teams, maintain the diversity of the student body, and assure the financial health of the organization now and in the future.

The financial aid office has limited money with which to accomplish all of these tasks. Financial Aid Directors closely watch their “discount factor” for students and for the incoming class. If they discount too deeply, their institution’s budgets simply don’t work. They’d naturally prefer students to pay full board, but they will discount when necessary to attract desirable students. A great number of schools go so far as to rank students by their institutional attractiveness and the degree to which they would use financial resources to attract them. Until you ask an office to reconsider your case, you don’t know how valuable you are to the institution, where you fall on their list, and whether they would consider a better offer to attract you.

Shopping has its critics and potential long-term costs

As you can imagine, colleges and universities do not love this set-up, but many feel compelled to play the game, nonetheless. Leaders of selective colleges and universities complain that they are trapped in an “arms race” to entice the best students to matriculate. They will offer merit scholarships and grants and match financial awards from competing schools. But to absorb these costs and balance out all of this discounting, they claim, they must raise tuition for the rest of their students. A great article from NPR’s Planet Money spells out this prisoner’s dilemma in the specific context of merit scholarships: many colleges do not want to offer non-need-based scholarships, but if they refuse to play the “merit” game, they risk losing highly attractive students to competitor schools who are willing to play.

Opting out

Many of the nation’s most selective colleges and universities have opted out of these merit-based “bidding wars.” They offer financial awards strictly based on financial need (determined by such instruments as the Free Application for Federal Student Aid (FAFSA) or the CSS Financial Aid Profile) and will not kick in merit money to match a competitor’s offer. The only “play” for those schools is to ask them to reconsider your financial need. For parents who are looking to leverage their children’s hard-earned GPAs and test scores to make college more affordable, they may need to dip down a level of prestige. There is plenty of money out there, but it’s not at the very top tier.

Some students simply cannot participate in this game of shopping aid packages: those who applied Early Decision. It doesn’t mean they made a bad decision; students who apply ED typically gain an admissions bump and are more likely to be accepted to their first-choice schools (see my article here on Early Decision). But they do have less leverage in requesting a more competitive financial aid offer.

Putting this game in a larger context

Evaluating the life-time expense of education, it makes a lot of sense to shop for the most attractive aid package for undergrad. Universities use their financial aid resources primarily to recruit undergrads. When it comes time for graduate school, be prepared to open your wallet because aid letters will likely contain far larger loans and far fewer grants/scholarships. Many smart students go for value for undergrad, perform well, and save the prestige for graduate school.

For an example of how to optimize the game, I frequently give parents the example of my sister, Michelle. As a high school senior, she successfully leveraged her grades and scores to secure a spot – and rock-bottom in-state tuition – at the University of Texas Plan 2 Honors program. Her accelerated undergraduate degree cost roughly $15,000. Let’s just say my undergrad Penn degree cost more by an order of magnitude! Michelle kept her college GPA high, rocked the LSAT, and was offered spots at Harvard and Duke Law. Now that’s how you play the game!

Fiscal prudence for an undergraduate degree makes a great deal of sense. Finding a school that is a financial fit is every bit as important as finding one that matches a student’s preferences and interests. For those of you who are playing the game, we salute you! You have till May 1st to deposit, and in that time, we hope you leverage your hard work, great grades and scores, and select a school you love, where you can grow for four years, and leave yourself with the financial freedom to pursue your next phase of life relatively unencumbered with student debt.