Financial Aid and Other Mysteries

If you are a high school senior applying to college, the closer you get to the end of the year, the closer you’ll be getting to the realities of paying for that college in which you finally enroll, mainly wrestling with the financial aid process. That process of finding out about and managing your way through the financial aid maze can seem long and frustrating. I’m addressing some of the basics here to try to help you not only prepare yourself for what lies ahead but also to make you aware of the requirements and resources.

You should show this post to your parents, too, since you will probably need their help answering the questions, and this may also give them an introduction to how the financial aid process works, if they’re not familiar with it yet.

Sometimes students are admitted to a dream college but then forced to turn the offer down due to finances. Believe it or not, those of you who come from low-income homes could be in better shape than many of your friends from middle- or higher-income brackets.

Why? Because the snazziest and most expensive colleges tend to be those with the most money to give away, but often these funds are earmarked for students from low-income families. While many colleges do have good “merit-aid” awards that go to all top candidates regardless of household income, sometimes the best financial aid (at least at the more prestigious colleges) is the “need-based” aid that goes to less advantaged applicants.

Living in a big city can be a disadvantage, though. Household incomes that might be considered “middle class” or below in, say, New York City would be higher incomes in other parts of the country. While colleges do take your cost-of-living into consideration to some extent, you don’t really get the credit you deserve coming from a major metropolitan area. In other words, you may not receive as much financial aid from some colleges as you think you will need in order to enroll.

As you embark on your college process, don’t use finances as a key criteria in selecting target schools … at least not just yet. BUT … I do realize that eventually money may play a starring role in your final choices. So, what you should do now is sit down with a parent (or parents) and ask them to be as frank as possible with you about college costs.

Many parents balk at the idea of talking about money with their children, so don’t force the issue. However, it would be very useful for you to know how much your parents think that they would be able (and willing) to pay each year towards your college costs. So here is the first question:

Question #1: What is the total amount per year your parents think they can (or will) pay for your college education without taking out any loans and without staying awake all night with worry or eating macaroni and cheese at every meal?

Question #2: What is your estimated EFC* using the:

– Federal Methodology?

– Institutional Methodology?

*In case you haven’t encountered it yet, EFC stands for “Expected Family Contribution.” It’s a figure that is computed for you by the Federal Government based on your family finances.

In theory, the EFC is the amount that your family should pay each year for your college costs (tuition, room, board, and all other fees). And that figure shouldn’t change, whether you are attending a college that costs $50,000/year or one that costs only $5,000/year.

Also in theory, when your EFC is low, then the colleges should make up the difference.

Example:

College A costs $42,000. If your EFC is $10,000, this college should give you $32,000 in scholarships and loans to make sure you can attend.

If College B costs $25,000, your EFC is still $10,000. It won’t change from school to school. So College B then should give you $15,000 in scholarships or loans. Get it?

Whenever your EFC is higher than the total cost of attendance, you won’t qualify for need-based aid at that school. But if it’s lower than the cost of attendance, then you will qualify for need-based aid, although you don’t always get it.

Why not? In reality, many colleges practice what is known as “Need Gapping.” They say, “Okay, we see you require $32,000, but we’re going to give you only $12,000. You’ll have to make up the difference on your own. We don’t care how you do it. Take out extra loans. Hit up Grams and Grampy; sell the family heirlooms. It’s not our problem.”

Most of the highly competitive colleges promise to “meet full need.” That is, they will give you enough aid to cover the difference between your EFC and their total costs. But commonly some of the money they give you is made up of loans, which must eventually be repaid.  So even if a college claims to meet full need, it doesn’t necessarily mean that your financial worries are over.

So … in order to answer Question #2, you and your family should do the College Board’s online EFC calculator that you will find here.

Shortly after you start, you will be asked to choose a “formula”–”Federal Methodology” or “Institutional Methodology” or “Both.” Select “Both.”  Once it’s time to actually apply to college, you’ll find that all colleges on your list will require the Free Application for Federal Student Aid (FAFSA) form for those seeking aid, and some will also require the CSS Profile form.

Colleges that ask for only the FAFSA will compute your aid award based on Federal Methodology.

Colleges that also require the CSS Profile, too, will use Institutional Methodology (well, more or less … their final figures may not be exactly the same as the results you get from the calculator).

So, for now, it will be helpful to get an approximation of both figures. This may give you a better idea of where you will ultimately get the best financial aid.  It will also help steer you towards colleges that you can ultimately afford to attend and to warn you when your top-choice colleges could be too pricey.

Finally, if all that financial aid information isn’t cumbersome enough, here’s a new wrinkle. It might help you out or it could just muddy the waters:

As of last October (2011), all colleges in the U.S. are now required to put a “Net Price Calculator” (NPC) on their Web sites. The NPC is usually similar to the College Board’s EFC calculator. However, most of them are more specific and may consider factors that are especially important to that particular college. Some even estimate if you will be in the running for merit aid.

It can be very time-consuming to fool around with the NPCs for EVERY college on your list. But, once you’ve done the College Board’s generic version, you might want to try one or two of them, just to see if the figures you get are different.

For instance, here’s a link to the NPC for Muhlenberg College in Pennsylvania, which does give merit aid.

And here’s one for Tufts University, which does not.

As I said above, you will need parental help to play with the College Board’s EFC Calculator because your Mom or Dad will have to provide figures from income tax returns. But, once you have those numbers, you will probably be able to do the college-specific NPCs on your own, should you choose to try them.  Some will ask almost the exact same questions as the College Board asked. Others will also want data such as your SAT scores, GPA, and sometimes even extracurricular interests or prospective major.

Keep in mind that you’re just “playing” here. You can try plugging in different numbers (higher SATs that you hope to achieve, varying majors) just to see different outcomes. None of this is official; it’s just to help you figure out how to create a college list that will maximize your options.

Fun, huh? Well, it’s all part of the wonderful world of college admissions and financial aid.

Seriously, I hope you have found some useful information among all this. Getting into and paying for college is getting more complex every year, it seems. The best approach, in my view, is to take it step by step. An old adage says, “Don’t try to boil the ocean.” Just take it one potful at a time!