Financial Aid 101

Understanding how financial aid works empowers you to make informed choices. Knowledge is power!

Expected Family Contribution

Your Expected Family Contribution (EFC) is determined by the Free Application for Federal Student Aid, otherwise known as the FAFSA. Some private colleges will also ask for the CSS Profile to determine your ability to pay. Use this calculator to estimate your EFC. Expect to be shocked, it’s completely ridiculous. When the formula for determining aid was created in the 1960s it built in a cost of living. The problem is the cost of education has far exceeded the cost of living. So now the formula says people can pay 30 percent or more of their annual salary towards one year of college. Write to your senator now and it might change for your grandchildren. In the meantime, this is what you need to know.

Parents: Have This Family Conversation ASAP

We can afford to pay $X for a single year of college. Apply wherever you want because we know private colleges can sometimes be more affordable than public schools with financial aid. Also, recognize cost will factor into a final decision. As a general rule, we don’t want you taking on total debt in excess of the average starting salary for careers you may be interested in. Whatever the gap between what we can afford and the financial aid you are offered, is money you will have to come up with or make another choice.

Important Notes

• Freshman students are not allowed to borrow more than $5500 in their name
• Financial aid offers almost always include a loan component for both students AND parents. Be clear if you are or are not willing to take on debt (and how much) to finance this education.
• The loan amount available to a parent may depend on credit score.
• Look to see what percentage of students graduate in four years versus six. Don’t assume you are financing a four year education if only 62% of students finish in four. It’s not necessarily the student’s fault, sometimes the classes just aren’t available and there’s nothing you can do about that. Or if someone changes their major, at a large public school especially, it can create a delay.
• Look at the average debt at graduation. It won’t be indicative of your debt specifically, but it may surprise you to see some private schools end up with less debt AND higher salaries 10 years out. Find this data (and more!) at www.college-insight.org

• Students can’t be considered independent before age 24 unless married, military, or a ward of the court essentially. If you are not willing to fill out a FAFSA for the next 4-6 years you are crippling your child’s ability to receive any financial aid at all. Whether or not you claim them as a dependent on your taxes will not matter.
• You will use your taxes that span second semester of sophomore year and first semester junior year for the freshman year FAFSA. If that does not accurately represent your current situation you will need to contact the individual financial aid offices and ask for special consideration for additional aid after you submit. Examples would be large medical bills or a one time salary bonus for instance.

Merit Aid

If you are hoping for merit aid to assist you in paying for college let me just warn you the more selective college the less likely to offer merit-based aid. Selective schools get plenty of applications and do not need to use merit aid to attract candidates. Jeff Selingo has a wonderful list of “Buyers and Sellers” I highly recommend. It lays out what percentage of each colleges’ financial aid budget is allocated for merit (versus need-based) aid. Seller colleges do not need to attract students by offering merit aid. They can fill their class regardless. Buyer colleges, on the other hand, use merit aid to discount their tuition to attract students. University of Puget sound for example offers students with a 3.6 GPA or above an automatic discount of $23,000 or more per year. That’s in addition to other financial aid. There are schools on Selingo’s list that offer some kind of merit aid to anyone who applies. Reducing debt (or avoiding it all together) is a graduation and lifetime gift.

It would also benefit you to understand some basic financial aid terms (see below.) It avoids unpleasant surprises and may inform your choices.

Outside Scholarships

Outside (aka private) Scholarships

It is a myth that there are thousands of unclaimed scholarships each year. While there may be a few, it’s because their criteria are strict. There aren’t many ambidextrous triplets with red hair  in the state of Arkansas it seems. Reputable scholarship sites such as the College Board or Fastweb.com are excellent resources for national scholarships. Start early! Deadlines for big things like the Edison scholarship or Coca-Cola scholarship are much earlier than people expect. National scholarships mean a lot more applicants most likely. Your odds are significantly better if you can find local opportunities. Ask your high school counselor for a list of local organizations that give to local kids.

When Outside Scholarships Work Against You

Wait, what?! How can free money work against me? Let’s cover how the college will actually apply any outside scholarships.

Let’s say you have a scholarship of $10,000 from the college you plan to attend. Your local Rotary club offers you a scholarship of $2000. You may think you now have $2,000 to offset your out-of-pocket (EFC) cost and saved yourself some money. That is logical, but may not be accurate.

Stacking scholarships – this is when the college says “Terrific! You are bringing extra money, we will we will allow you to apply that two thousand dollars towards your portion of what you owe.” So if your bill was $15,000 it is now $13,000 and you retain the $10,000 the college offered you as well.

Collapsing scholarships – (I think I made that term up but humor me.) In this case the college says that $2000 you’re bringing in will replace $2000 worth of aid that we offered you. So that $10,000 scholarship you had from the college is now $8000 but you “aren’t paying any more” because you won two thousand dollars from another source. This scenario is really frustrating because it makes you wonder “why did I bother to get that other scholarship?! That was one more essay I didn’t need to write or stress over!” The problem is, you won’t know how colleges are going to process your scholarships when you are applying. You can ask if it will be a dealbreaker, it will just take some extra homework on your part.

And yes, you are required to disclose any outside funding if asked.

Vocabulary To Know

Need blind – this means the college does not know whether or not you have applied for financial aid when they are reading your application. Therefore it is not taken into consideration when making a decision.

Need aware – this is when a college will factor in whether or not they can afford to give you the financial aid you need to attend before making an admission decision. In this case, students might be initially admitted (though they would never know it) but when it comes to the college distributing their limited financial aid budget they may make a decision to admit four students with less need versus one student with high need.

Guarantee to meet need – this is a totally separate issue from the admission decision. Colleges that guarantee to meet need are saying whatever the difference between what the FAFSA (and possibly CSS Profile) says you can afford and what it will cost you to come to our college we guarantee to offer you financial aid to cover that gap. It doesn’t mean it will be all grants, it will almost certainly include loan. There are only about 40 colleges nationwide that guarantee to meet need without loans. As you can imagine they tend to be fairly competitive.

Even if you are admitted to one of the colleges that agree to meet 100% of need and do it without loans you may end up with the loan. How you ask? Let’s say your FAFSA and CSS Profile forms calculate your family can afford $25,000 as their contribution towards your education. But your family doesn’t actually have $25,000 for that purpose. In that case, you may choose to take out a loan to cover your portion. If you are lucky it will be a federally subsidized loan, otherwise you have to go to the private market. That’s a whole different blog post!

Gapping – this is when a college admits a student, but the financial aid is not enough to meet the difference between what the FAFSA says they can afford and what it costs to come to the college. Thus there is a gap the student and family have to figure out on their own.

Overwhelmed Yet?

It is a huge amount of information to take in. And you may have lots of questions. Many of your questions will be personal to your situation and require a financial aid expert to answer. That is not me unfortunately. I do encourage you to email a financial aid office at your nearest college and ask your questions. Generally these people are super helpful. They also get extremely busy between January and May. And a word to the wise, admission officers will typically refer you directly to the financial aid office for questions. Feel free to ask, but they tend to stick to the admissions side of the house.

The FAFSA and the CSS Profile are available on October 1 each year. Start early because money is sometimes awarded on a first-come-first-served basis depending on the school. Always better to be first in the queue rather than last. Good luck to all!