The Cost of Education: the language and tools of financial aid for students and parents

by College Goals

Working in an admission office made me very aware of the impact financial need has on a student’s ability to attend a particular university, especially since I coordinated a program to increase the presence of economically disadvantaged students on campus. And as a parent I will never again listen to a young admission officer talking about the “painless” process of applying for financial aid, without an inelegant snort and the knowledge that his or her parents likely felt very differently!

As parents and students explore college admission, they cannot help but be struck by the astonishing cost of attending an American university. Sarah Lawrence College, for example, has a sticker price of almost $60,000! Parents are questioning their ability and their interest in paying such exorbitant fees. Even families who do not expect to qualify for financial aid are exploring scholarship opportunities for their children. The best counsel on how to pay for college will come from private financial advisers or from financial aid counselors at colleges. Here, however, is a very basic overview of the process just to familiarize you with the concepts and give you some of the “language” with which to have those conversations.

• The first important concept is the difference between an institution that claims to be “need blind” in its admission practices and another that is “need-aware.” For need-blind colleges a student’s application for financial aid, large or small, is not a factor in deciding whether to admit a student, or not. For a need-aware college, such need may play a role in whether a student is accepted or not. Most state schools practice need-blind admissions, but most private schools (except a relatively small segment of the most selective ones) do not. In fact, being need-blind may expand a college’s applicant pool, which in turns makes the school more selective. But even those colleges that are need-blind may not be so for every applicant – indeed, because of the great cost to the school of such a policy, most will exclude transfer and international applicants, for example.

• Colleges may award two kinds of financial aid: merit-based or need-based aid. Merit scholarships are awarded to students based on their talents and not on financial need. These talents may include athletics, academics, musical skills or commitment to service. Merit-based money is a measure of how much a college would like a student to attend and is unaffected by the wealth or the need of the student’s family. Ivy League colleges, however, do not award any merit-based aid – being awarded a “full ride” by an Ivy is the result of exceptionally straitened circumstances and not a measure of unusual merit. Some schools may award such merit scholarships without the student having applied for financial aid at all, while others will still use the FAFSA to make the assessment – which may be reason to complete the FAFSA even if you do not believe that you will qualify for any aid.

• Need-based aid is based on a calculation of a family’s demonstrated need. In other words, the cost of attending a college minus the estimated contribution a family can make to cover that cost (EFC) = demonstrated need. How does a college determine that need? To apply for aid, an American family will need to complete the FAFSA (Free Application for Federal Student Aid). As the name implies, you should not ever pay to submit this form, which can be downloaded at http://www.fafsa.ed.gov/. The FAFSA will be used to assess a family’s need by considering income (taxed and untaxed), assets (retirement funds are not considered under assets, however, and neither is home equity), how many members in the family, and how many enrolled students in the family. The FAFSA’s federal deadlines fall well after much of the admission process has passed, but, in addition, each college and even every state may have additional, earlier deadlines – you can find these at http://www.fafsa.ed.gov/deadlines.htm. It is crucial that students and parents meet these deadlines!

• Many private colleges will also use the CSS Profile, an aid application managed by the College Board, in addition to the FAFSA. The Profile is also completed online after October 1 but before the earliest priority deadline set by each college. Again it is crucial that families check the Financial Aid Office websites of their chosen colleges. Whereas the FAFSA is used to disburse federal funds, colleges use the Profile to disburse their own institutional money. It uses a slightly different set of calculations from the FAFSA– home equity is considered, for example (though it is capped to limit its impact).
• Once a college has estimated a family’s estimated contribution and its remaining need, financial aid officers set about to calculate how the college will meet that student’s need. Financial aid packages are just that: a package of different forms of assistance, determined by the specifics of a student’s need. Typically it will consist of loans (these have to be repaid), work-study opportunities and grant or scholarship money (these do not require repayment). Since 2010, loans to US citizens or eligible non-citizens are made directly to parents and students rather than through commercial lenders. There are a few kinds of loans: subsidized or unsubsidized Stafford loans made to students, Plus (Parent Loan for Undergraduate Study) loans made to parents with a somewhat higher interest rate than the Stafford loans, and subsidized low-interest, need-based Perkins loans to students. Subsidized loans generally do not accrue interest until the student has to begin repayment after graduation, but unsubsidized loans do.

• An important part of a financial aid package may be work-study opportunities that give students the chance to earn some of the money they need by working on campus at a job partially subsidized by the US government. Some colleges will even direct students to jobs without them having to search around for these. Students who do not qualify for any financial aid can still work on campus too, of course.

• Grants are that portion of a financial aid package that need not be repaid. They may include federal Pell grants, one of the extraordinary ways in which the US government can assist very needy families, or they can come directly from the institution itself. The greater a student’s financial need, the bigger the portion of their financial aid that may be met with such grants.

• Many colleges are very much aware of concerns about the debt burden with which many students graduate, but only the wealthier private schools may be able to do something about it. Many of the Ivies, for example, will give students who earn less than a given threshold financial aid packages that will have no loan component. Princeton students who need financial aid will not have any loans as part of their aid package. At Brown in 2010-2011 some 61% of students who received need-based financial aid did not have any loan component, while Yale spent $109 million in need-based aid. But the reality is that many American students will graduate with crushing loan burdens that will limit their ability to make free choices about their careers after they graduate.

• Families inevitably wonder whether they are eligible for any financial aid, or about the ways in which they may improve their eligibility. To help families calculate their estimated family contribution (EFC), colleges are now required to put a Net Calculator on their websites that will reference the specific costs of that institution. You can also find a general such calculator on the College Board’s website at http://netpricecalculator.collegeboard.org/. A financial adviser will be best able to direct a family to ways that may improve their eligibility – like shifting any assets in a student’s name, which will heavily reduce eligibility, to a custodial 529 college savings plan in the parents’ name – though in reality there is a limit to what one can do.

• When a student has applied for financial aid, the offer will often come together with the offer of admission, or shortly thereafter. Unless a student was accepted during Early Decision, the family will hopefully have a few offers to consider. The net cost (the cost of attendance minus the financial aid award) may be quite similar across different offers. But the out–of-cost expenses for every family, determined by the composition of the aid package, may differ from one college offer to another – how much of the package consists of non-repayable grant money as opposed to loans that need repaying? If you find that these vary quite dramatically between two offers, it may be that you gave one college a more complete set of information than what you gave another. In this case, immediately start a conversation with the college’s Financial Aid Office to try and remedy the disparity. If that conversation produces no change, then this may become a factor in the student’s decision.

• Many students, especially those who believe that they will not qualify for need-based aid, may pursue so-called “outside” scholarships. These are sources of funding that are not administered by colleges but rather by other private organizations, each with its own application process and eligibility criteria. Families should not pay for any of these, or even pay anyone to search them out! One good search engine is http://www.fastweb.com/ and you can find a listing of additional free search engines at http://www.finaid.org/scholarships/other.phtml. These searches may deliver either small or significant amounts of money, and a student may want to start by asking whether the amount warrants the application process. Every penny can indeed help, but if a student has to spend extraordinary amounts of time searching and then completing applications for small amounts, some may not find it the best use of their time and energy. Students should ask Financial Aid Offices about the impact such scholarships will have on financial aid packages. Some colleges may use the funding to reduce their own grant component, which means there is no net advantage to the student at all; others may be willing to reduce the student’s loan component. Schools’ policies on this issue, the size of the scholarship and whether it is annually renewable or not, should all be factored into a student’s decision to apply to an outside scholarship.

• Most of the discussion up to this point focused on American citizens and eligible non-citizens like permanent residents. This is because federal aid, which will be a very significant component in domestic student’s financial aid package, is not available to international students. Colleges need to meet such students’ financial need from their own funding, and bar a few schools with exceptional endowments, American colleges cannot afford unlimited aid. International students who need aid should therefore apply to colleges with this in mind. While the most selective colleges may have the biggest pocketbooks, they will also have the largest number of exceptional and needy international applicants. A lesser-known college may have smaller resources but also have fewer applicants vying for that aid. A student who is an American citizen applying from overseas remains eligible for federal aid, and a student who has lived in the U.S. but never took American citizenship or permanent residency is not.

In general, there are a few tips students and families intending to apply for financial aid, should consider:

• Be clear that you know what numbers you are talking about and that you are not comparing the cost of apples and oranges with each other. The total sticker price used to determine financial need includes tuition but also the other expenses that a student will need to cover in order to attend that college: cost of accommodation, books, health insurance, travel home, and personal expenses. That huge number may be a “total” price and not just tuition cost.

• Ask every college to which you apply for aid whether it will meet 100% of your demonstrated need, or only a portion. Some colleges may practice a form of “bait and switch,” and after attracting freshmen with generous aid will cut off that help after a year or two.

• Every strategy your family has considered for “gaming” the system, even the really drastic ones like having a student declare him or herself emancipated from parents, have been tried and rejected. There are few loopholes, so while you should be thoughtful about the process and seek out advice, you should also know that there are limits to what you will be able to do to increase your eligibility.

• The process requires organization and attention to details and to deadlines. If you miss deadlines, you may find that a college has awarded all the funding it has available. Deadlines will vary from college to college, and even within a single school there may be different ones for different scholarship programs.

• Do your taxes earlier than you may normally be inclined to – otherwise every figure becomes an estimated one and you may not have the clarity about your obligations that you may like.

• Be as thorough and detailed as you can. Vague information will not increase your financial aid package, only make its delay likely!

• Inform yourself about each college’s unique financial aid policies – is a school need-blind for students like yourself, does it award merit aid and do you need to apply for it, what are the deadlines, how does the school treat outside funding, what forms are required and, above all, how does that college assemble a financial aid package based on its own institutional resources (no merit aid, no loans under a certain income level, and so on). All this information should be on its website.

• Never hesitate to phone a Financial Aid Office to ask advice, or to find out how you can appeal an offer. It may be simply a matter of incorrect or missing information. But be assured that schools do view paying for college as a worthwhile investment on your part that may require some sacrifices – families whose appeal rests on their inability to maintain their vacation home or their yacht are unlikely to find a receptive audience!

• Remember that, contrary to what you may believe, the financial aid officers are constrained by specific rules and policies. They are not salesmen who can haggle to their hearts’ content about the price of the used vehicle but people who are incredibly knowledgeable about financial and tax policies. They are also, based on my own professional and personal experience, people who are interested in helping you pay for college. Be nice to them!

Here are some of the resources that students and their families may find useful:

http://kaarme.com/find_scholarships [a website that provides one of the largest free and searchable databases for scholarships]

www.finaid.com [an overview of very useful advice about financial aid]

www.fastweb.com [a good search engine for outside scholarship resources]

http://www.collegeboard.com/student/pay/index.html [a useful overview and search engine]

Mark Kantrowitz, founder of FinAid.org, is the author of a book, “Secrets to Winning a Scholarship,” published in February 2011.

https://www.unigo.com/scholarships# (Unigo is a useful site for advice about colleges – College Goals counselors sometimes contribute to its Expert Network]

http://www.edupass.org/finaid/ [a very useful site for international students wishing to study in the US]

http://www.iefa.org/ [International Education Financial Aid]

http://www.internationalstudent.com/schools_awarding_aid/ [a list of schools that award financial aid to international students]

Students’ efforts to find their dream schools should not simply revolve around concerns about funding, but this requires planning, research and forethought. Good luck![/vc_column_text][/vc_column][/vc_row]