Qualifying for Financial Aid: How Wealthy is Too Wealthy?

Over the weekend my sister was telling me about a teenager, who is getting recruited by a couple of Ivy League schools to play softball.
The parents are excited about the prospects of her daughter getting a sports scholarship to an Ivy League school. Does anybody out there know what’s wrong with this dream?
The eight Ivy League schools don’t award any sports scholarships. The only money these universities award is need-based financial aid. These schools only provide aid to students who require assistance attending a school where the cost can approach $60,000 a year.

How Much Can You Make and Still Get Financial Aid?

My question to my sister then was this:  Is your friend wealthy?
If the parents are wealthy — and many of the families at these schools are — their daughter could end up at an Ivy League school, but the parents will pay full price for the bachelor’s degree — easily a quarter million dollars. The Ivies don’t give a price cut to any wealthy students.
The definition of wealthy is admittedly too broad a term to use when talking about financial aid. I was giving a speech once to a group of affluent professionals and a mother, who is a judge and Harvard grad, blurted out this question: How wealthy is wealthy? It was an excellent question.
At some elite, expensive colleges and universities, a family making $150,000 to $200,000 could qualify for a decent chunk of need-based aid. There are a lot of factors at play, but it would be unusual to get $25,000 or so in need-based aid in some cases. A family with two children in college simultaneously could qualify for need-based aid with even a higher income because the financial aid methodology assumes that parents can’t pay as much money when they have multiple children in college.

Why Colleges Love Rich Students

Wealthy families enjoy lots of options for their children. Rich students are in demand because they are often better prepared for college because of the advantages they have enjoyed in life. As a practical matter, they tend to have higher GPA’s and SAT/ACT scores, which schools care about because US News’ college rankings care about these things. Wealthy kids are also highly desirable because they can help underwrite the college costs for less fortunate students at a school because they will be paying more.
If you are wealthy, here is more good news:  nearly all colleges in the country give merit scholarships to rich students. There are only about three dozen schools in the entire country that don’t — including the Ivy League institutions — because they don’t have to. These schools are overrun by wealthy applicants so they don’t need to offer a carrot. These elite schools are perched at the top of the college rankings lists, which is another reason why they don’t have to offer merit scholarships.
All other schools, however, do need to offer carrots because the college market below the most elite schools like MIT, Amherst, Pomona and Georgetown (none of these give merit scholarships to rich students)  is very competitive. Most schools are competing furiously with everybody else to attract great students. And these schools do this by offering merit scholarships to students who, at least on paper, don’t need any help with the college bill. Just being wealthy can give you a leg up in college admission decisions.

Best Way to Determine if You Qualify for Aid

I want to end this post by revisiting the judge’s question. How wealthy is wealthy?
The best way to answer that question is use the new net price calculators that every college and the university must have installed on their websites. These calculators will give you a personalized estimate of what a school will cost you after deducting any scholarships and grants that your child will qualify for.   You can learn more about net price calculators from my past posts.
 Playing Hide and Seek with Net Price Calculators
College Cost Calculators: Getting Wildly Different Answers
You can also learn more about financial aid strategies for families of all incomes by reading my workbook, Shrinking the Cost of College. Here’s where you can download a free chapter on college grants and scholarships.

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