New financial-aid program aims to help students of middle-income families

Middle-income families face significant financial challenges and are increasingly feeling as though they are unable to handle high-cost education at institutions like Stanford. In response to a survey of parents of current students showing that middle-income families are struggling to pay the cost of a Stanford education, the university has committed an additional $5 million in financial aid for the 2007-08 academic year to help ease their financial burden.

"It's been a real challenge for a lot of those families," said Karen Cooper, director of financial aid, referring to families whose annual incomes range from $60,000 to $135,000.

Cooper said national data show that many middle-income families are not even applying to high-cost schools like Stanford because they are so worried about the sticker price. Instead, they are sending their children to institutions they perceive to be less expensive alternatives.

"We want to say: We've got financial aid available for those families to help make the costs more reasonable," Cooper said.

Stanford is one of the few universities in the nation that is "need blind," meaning that U.S. citizens and permanent residents are admitted without regard to their ability to pay. The university then meets the full need of all students who qualify for aid.

Last week, Stanford announced it was raising total undergraduate fees—tuition, room and board—for the 2007-08 academic year to $45,608, compared with $43,361 in the current year. While costs will increase 5.2 percent, the institutional need-based scholarship funding is being increased 15.2 percent. All told, the university will dispense $76 million of its own funds in undergraduate financial aid in the upcoming academic year, compared with $66 million during the current year.

Cooper said the additional aid earmarked for middle-income families will be used to reduce the sum parents are expected to contribute. It also will reduce the amount students are expected to borrow during the school year to $2,000 from $3,500. Both of these reductions will be offset by increased scholarship funds for students.

Under the new guidelines for middle-income families, Stanford will reduce the amount of home equity assessed in the calculation of a parental contribution by capping the amount of equity considered at 1.5 times the family income. The policy is expected to reduce parent contributions for families with significant home equity by, on average, $2,000. An allowance also will be made for renters.

For example, consider a family of four from California with annual income of $103,000. They purchased their home 15 years ago and have accumulated $480,000 in equity. Under the old policies, the parents would have been expected to contribute more than $25,000, and the student would have been expected to borrow $3,500 annually. A scholarship of $14,000 would have been granted to make up the shortfall. When the new policies are fully implemented next fall, the expected parent contribution will be reduced to $22,000, and the amount the student is expected to borrow will be reduced to $2,000. To make up the difference, the student's scholarship will be increased to $19,000.

Last year, the university reached out to low-income families by eliminating parent contributions for families whose annual incomes fall below $45,000 and cutting parent contributions in half for families earning $45,000 to $60,000.

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