I’ve been learning so much about different financial products and investment strategies from blogs, articles, student groups, older investors, and, most recently, some willing mentors in the BetterInvesting community. While it’s been great, I have realized that I probably shouldn’t go forward in investing more than a tiny training portfolio of my own money at this time, no matter how many brilliant ideas I have and how many new things I want to get familiar with. At risk of cognitive dissonance in comparison to the stories of my experiences, I will explain to you my particular reason: financial aid.
As a student going into my junior year of college at Harvard and a tad reliant on financial aid for continuing my education (70% of Harvard students receive some form of financial aid), it is both a fear and a reality that personal investment will compromise a percentage of my scholarship. How much is unclear; the way the government calculates the Expected Family Contribution (EFC) each year is undisclosed, though many websites host online calculators that should get you a (wide) ballpark number. The FAFSA website does address student investments in very general terms: “If the student is a dependent [as most students are], the accounts are reported as parental investments in question 90, including all accounts owned by the student and all accounts owned by the parents for any member of the household,” which tells us that student investments are equally weighted to parental investments but nothing really about specific numbers and percentages. Past the FAFSA, the formula that Harvard uses to calculate the values of its own need-based scholarships is a separate mystery.
I believe that the mystery of how financial aid credits are awarded is good: if more details were disclosed, enterprising individuals would try to find the loopholes in the formulas, gaming the system at the expense of families who may not have the time, familiarity, or language-skill to read all of the footnotes and small print.
And, of course, I also think that financial aid is great. Working on campus during reunion week at Harvard and noticing the uncomfortable lack of diversity of the alumni classes, I am proud that more and more colleges are making their programs more widely available. Even though it would benefit me personally to change the policy, I do not think that student investments should be weighted less than parental investments, again because of the loopholes that such will create.
But what I would like to do is highlight that this will delay my personal investments to many years ahead, especially as graduate schools provide financial aid awards and low-interest loans to students with financial needs. Because the specific weightings of particular investments is undisclosed, I have to be patient in applying my newly-acquired investing knowledge into the markets. For me, it’s well worth the wait, and for other students, it’s a consideration to be aware of so they don’t unwittingly jeopardize their financial aid situation.