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By Mandi Woodruff
On paper, Luigi Galvan’s family looks better off than most. Together his parents earn about $120,000 per year — more than twice the current median household income in the U.S.
That kind of paycheck may be plenty to support a standard family of four, but Galvan, 17, is one of seven children, including a younger brother who is disabled and requires expensive medical treatment. When he was accepted at the University of California, Berkeley earlier this year, his parents knew they would need help affording the $32,000/year it would cost him to attend.
The federal government thought otherwise. Despite his family’s unique circumstances, Galvan’s family earned too much for him to be eligible for federal grants. He’s not alone. State and federal funding for higher education has plummeted since the Great Recession and the gap between tuition costs and family incomes has only widened. Middle-income families often find themselves disproportionately affected. They aren’t poor enough to qualify for federal grants and scholarships and they aren’t wealthy enough to foot their children’s education bill on their own. The government doesn’t cut off financial aid eligibility at a certain income level but in 2008, 96% of households that received the Pell Grant had an adjusted-gross income of $50,000 or less.
“These parents are making enough to make ends meet and maybe put something into their retirement fund,” says Sue Tirukonda, a certified college aid planner in Wichita, Kan. “But they look at those numbers and they say there’s no way I will be able to afford my mortgage if I were to devote that much money to paying for college.”
When they can’t afford tuition, middle-income families — including the Galvans and the Graves family, highlighted in the video above — are increasingly leaning on debt. A recent study found that college students from middle-income families were more likely to end up with student debt than those from lower- and higher-income backgrounds.
At least one state is working to solve this discrepancy. This fall, California will become the first state to dole out scholarships specifically aiming to help out middle-income families.
The California Middle Class Scholarship will offer funding to families who earn less than $150,000 a year (including investment income and other assets) if their child enrolls at a University of California or California State University (CSU) campus. Awards max out at 40% of the cost of tuition and vary based on how many families apply. To be eligible, students need to fill out a Free Federal Application for Financial Aid Jan. 2 - March 2, 2015.
“This scholarship is something that does at least somewhat acknowledge the fact that families in the upper $100,000 area of annual income aren't always able to pay as much as colleges expect them to,” says Galvan, who lives in Antioch, Calif. “More aid helps me focus more on my education rather than worrying about what I'll have to pay off for while I'm here.”
The state’s student aid commission, which is charged with administering the scholarship rewards, estimates more than 150,000 families will qualify.
“The recession really hit California families hard,” says Patti Colston, spokeswoman for the student aid commission. “The middle class scholarship is seen as a way to support the needs of middle class families who [need it most].”
College aid advocates have long called for more federal and state funding for higher education. Federal education funding has declined greatly since before the recession, according to a recent report by the Center for Budget and Policy Priorities, a left-leaning think tank. Today, 48 states invest less in college education than they did before the recession.
For middle class families who can’t take advantage of California’s scholarship, there are still ways to curb the costs of college without racking up a lifetime’s worth of debt.
1. Fill out the FAFSA no matter what. Even if you earn six figures and are sure you won’t qualify for any grants, fill out the FAFSA anyway, says Joseph Orsolini, a financial aid expert with College Aid Planners. This application is the only way for students to qualify for federal student loans, which have much lower interest rates and more flexible repayment options than private loans.
2. Start small. Rather than applying for massive $50,000 scholarships you may see on TV commercials, it’s always easier to start small. Galvan applied for 20 or 30 small scholarships, he says, and won a few, including one directly from his high school. Tirunkonda suggests beginning with the high school counselor’s office and checking out your state’s student aid commission website for local scholarships and grants. Chambers of commerce, rotary clubs, and local banks also offer scholarship funds. “Start applying in August, September and October,” Tirukonda says. “Spend an hour a week on applications and get those small ones. It’s some of the best money you can earn for school.”
3. And keep applying for scholarships even in college. “One thing a lot of kids don’t realize is you don’t just apply for scholarships in as a senior in high school,” Tirukonda says. “Colleges have departmental scholarships for sophomores, juniors and seniors, too, and they aren’t as competitive sometimes.”
4. Parents: Don’t open a savings account in your kid’s name. Parents often think that opening a regular savings account in their child’s name for college is a good idea. But it will come back to hurt you when you apply for financial aid later. The algorithm used to decide how much aid families qualify for weighs student financial assets much more heavily than parents’, Tirukonda cautions. To get around this, either open a savings account under your name or a 529 College Savings Plan for your child.
5. Make scholarship applications your kid’s part-time job. Galvan spent 30 minutes to an hour on each of his scholarship applications. That's what it takes to be competitive. “I think a lot of times kids get so busy in school that they don’t spend enough time on scholarship essays,” Tirukonda says. “The essays are so critical. You want to spotlight the child and tell them what they have achieved and what they have learned with [solid examples].”
6. Don’t forget about tax credits. The American Opportunity Tax Credit awards taxpayers who have spent money on college tuition and fees, up to $2,500 a year. Over four years, you could shave $10,000 off your total tuition bill.
7. If all else fails, pick a cheaper school. “At some point attending that expensive college is just financially out of the question,” Orsolini says. “Parents need to say no if attending a particular college will bury their child in life-altering debt or jeopardize their retirement.” For many areas of focus, what matters most to employers isn’t where you’ve studied but what you’ve studied. A good way to figure out whether a school is worth its cost is to check the federal government’s College Scorecard. It categorizes colleges based on their price, financial aid offerings and employment prospects for graduates, among other factors.
